SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number: 0-16181
ABC BANCORP (A GEORGIA CORPORATION)
I.R.S. EMPLOYER IDENTIFICATION NUMBER 58-1456434
24 2nd AVENUE, S.E., MOULTRIE, GEORGIA 31768
TELEPHONE NUMBER: (229) 890-1111
Securities registered pursuant to Section 12(b) of the Act
None
Securities registered pursuant to Section 12(g) of the Act
Common Stock, Par Value $1 Per Share
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No ___
---
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is not contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
As of March 1, 2002, registrant had outstanding 9,888,679 shares of common
stock, $1 par value per share, which is registrant's only class of common stock.
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was approximately $121,249,500 million.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Annual Report is incorporated by
reference from the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A not later than 120
days after the end of the fiscal year covered by this Annual Report.
PART I
ITEM 1. BUSINESS OF THE COMPANY AND THE SUBSIDIARY BANKS
ABC Bancorp ("ABC") was organized as a bank holding company under the
Federal Bank Holding Company Act of 1956, as amended in 1981 (the "BHCA"), and
the bank holding company laws of Georgia.
ABC provides, through its commercial bank subsidiaries described
below (sometimes hereinafter referred to as "Banks"), banking services to
individuals and businesses in Southern Georgia, Southeastern Alabama and
Northern Florida. ABC's executive office is located at 24 2nd Avenue, S.E.,
Moultrie, Georgia 31768, and its telephone number is (229) 890-1111. As a
registered bank holding company, ABC is subject to the applicable provisions of
the Federal Bank Holding Company Act and the Georgia Bank Holding Company Act,
as well as to supervision by the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation and the State of Georgia
Department of Banking and Finance.
Our primary business as a bank holding company is to manage the
business and affairs of our Banks. The Banks provide a broad range of retail and
commercial banking services to its customers, including checking, savings, NOW
and money market accounts and time deposits of various types; loans for
business, agriculture, real estate, personal uses, home improvement and
automobiles, credit cards; letters of credit; trust services through Reliance
Trust Company; brokerage services through either PFIC Securities Corporation or
Raymond James Financial Services, Inc.; fixed rate annuities through PFIC
Corporation; IRA's; safe deposit box rentals; bank money orders; and electronic
funds transfer services, including wire transfers and automated teller machines.
We maintain a diversified loan portfolio and make no foreign or energy-related
loans.
While we have decentralized certain of our management
responsibilities, we maintain efficient centralized operating systems. As a
result, corporate policy, strategy and certain administrative policies are
established by our board of directors, while lending and community-specific
marketing decisions are made primarily by each bank to allow it to respond to
differing needs and demands of its own market. Data processing functions are
centralized in the ABC's data processing division located in Moultrie, Georgia.
Within this framework, the Banks focus on providing personalized services and
quality products to their customers to meet the needs of the communities they
serve. Our objective is to establish ABC as a major financial institution in
Southern Georgia, Southeastern Alabama and Northern Florida. Management has
pursued this objective through an acquisition-oriented growth strategy and a
prudent operating strategy.
As a bank holding company, we perform central data processing
functions, purchasing functions and other common functions and provides certain
management services for our Banks. Normal banking services are conducted by the
Banks.
1
OUR SUBSIDIARIES
Following is a list of our Banks, the market areas served by the Banks
and the estimated relative size of the Banks as compared with their major
competitors.
Estimated Relative Size
Subsidiary Bank Principal Market Area Among Competitors
------------------------------------ ------------------------------------------- --------------------------------
American Banking Company Moultrie and Colquitt County, Georgia Second largest of seven banks in
Colquitt County, Georgia
Heritage Community Bank Quitman and Brooks County, Georgia and Second largest of four banks in
Valdosta and Lowndes County, Georgia Brooks County, Georgia
Bank of Thomas County Coolidge, Thomasville and Thomas County, Fifth largest of seven banks in
Georgia Thomas County, Georgia
Citizens Security Bank Tifton and Tift County, Ocilla and Irwin Third largest of seven banks in
County, Douglas and Coffee County, Georgia Tift County, Georgia
Cairo Banking Company Cairo and Grady County, Meigs and Thomas Second largest of six banks in
County, Georgia Grady County, Georgia
Southland Bank Dothan, Abbeville, Clayton, Eufaula and Fifth largest of eleven banks in
Headland, Alabama Houston County, Alabama
Central Bank & Trust Company Cordele and Crisp County, Georgia Third largest of six banks in
Crisp County, Georgia
First National Bank of South Albany and Dougherty County, Georgia and Fifth largest of nine banks in
Georgia Lee County, Georgia Dougherty County, Georgia
Merchants & Farmers Bank Donalsonville and Seminole County, Georgia Second largest of three banks in
and Colquitt and Miller County, Georgia Seminole County, Georgia
Tri-County Bank Trenton and Gilchrist County, Florida and Largest of three banks in Gilchrist
Newberry and Alachua County, Florida County, Florida
The First Bank of Brunswick Brunswick, St. Simons Island, Jekyll Fourth largest of eight banks in
Island and Glynn County, Georgia Glynn County, Georgia
All of the Banks offer traditional loan and deposit services discussed
elsewhere in this Annual Report on Form 10-K. Only American Banking Company
provides trust services directly to its customers and to the customers of the
other subsidiary banks. All of the Banks maintain correspondent relationships
with other commercial banks and the Federal Home Loan Bank of Atlanta. As
compensation for services provided by the correspondent banks, the Banks
maintain certain balances in noninterest-bearing accounts with those banks. The
principal correspondent bank for all of the Banks is SunTrust Bank in Atlanta,
Georgia.
On August 30, 2001, ABC formed ABC Bancorp Capital Trust I, a Delaware
statutory trust and a wholly-owned subsidiary of ABC (the "Trust"), for the
purpose of (i) issuing and selling its common securities to ABC and its trust
preferred securities to the public, and (ii) using the proceeds from the sale of
the trust preferred securities to purchase 9.00% Subordinated Debentures (the
"Subordinated Debentures") from ABC. In the quarter ended December 31, 2001, the
Trust sold its securities and used the proceeds to purchase the Subordinated
Debentures, which are the sole asset of the Trust. ABC pays interest on the
Subordinated Debentures to the Trust at the end of each quarter at an annual
rate of 9.00%, which is equal to the dividend rate payable by the Trust to the
holders of its preferred securities. The cost of the issuance of the Trust's
preferred securities is treated as a deferred asset and will be amortized over
the life of the securities. Following the offer and sale of the Trust's
securities, ABC owned and currently holds all of the outstanding common
securities of the Trust, its only voting securities, and as a result the Trust
is a subsidiary of the Company. See the Notes to ABC's Consolidated Financial
Statements included in this annual report for a further discussion regarding the
issuance of Trust's preferred securities.
2
Our Market Areas and Competition
Our market area is located in Southern Georgia, Southeastern Alabama
and Northern Florida. The Banks' main offices and larger branches are located in
the southern Georgia cities of Albany, Brunswick, Cairo, Colquitt, Cordele,
Donalsonville, Douglas, Jekyll Island, Moultrie, Ocilla, Quitman, St. Simons
Island, Thomasville, Tifton and Valdosta, the southern Alabama cities of
Abbeville, Clayton, Dothan, Eufaula and Headland and the northern Florida cities
of Trenton and Newberry. The Banks have a total of 35 offices located in either
the cities or counties in which the main offices are located or in nearby
cities.
We have subsidiary banks in several high-growth market areas that
offer favorable growth and profitability potential, including banks in the
cities of Valdosta, Tifton and Cordele, which are located along the I-75
corridor of Georgia, a major north-south transportation artery. We also have
banks in Albany, Georgia and Dothan, Alabama, both of which are developing
commercial and industrial "hubs" where residents of the numerous smaller,
surrounding cities find jobs, entertainment, consumer products and services and
medical services.
In April 2001, we completed the acquisition of a bank in northern
Florida, and in June 2001, we acquired a branch of a competing bank in the same
market area. We have combined these acquisitions into one bank with assets of
approximately $71 million. One branch of this bank gives us a presence in the
outskirts of the high-growth area surrounding Gainesville, Florida.
The recent acquisition of The First Bank of Brunswick gives us
additional growth and profitability potential. The First Bank of Brunswick had
total assets of approximately $150 million at December 31, 2001. The First Bank
of Brunswick has its main office and one branch in the Georgia community of
Brunswick, Georgia and two additional branches on St. Simons Island, Georiga,
and Jekyll Island, Georgia. Brunswick is located directly on vital Atlantic
Ocean shipping waterways and the I-95 corridor of Georgia. It is also in close
proximity to some of the most popular beachfront property on the east coast of
the United States (including Sea Island, St. Simons Island and Jekyll Island).
All of these factors give us significant opportunities in commercial,
residential, vacation resort and retirement resort growth and development
potential.
The banking industry in Georgia, Alabama and Florida is highly
competitive. In recent years, intense market demands, economic pressures,
fluctuating interest rates and increased customer awareness of product and
service differences among financial institutions have forced banks to diversify
their services and become more cost effective. Each of the Banks faces strong
competition in attracting deposits and making loans. Their most direct
competition for deposits comes from other commercial banks, thrift institutions,
credit unions and issuers of securities such as brokerage firms. Interest rates,
convenience of office locations and marketing are all significant factors in the
Banks' competition for deposits.
Competition for loans comes from other commercial banks, thrift
institutions, savings banks, insurance companies, consumer finance companies,
credit unions and other institutional lenders. Our Banks compete for loan
originations through the interest rates and loan fees they charge and the
efficiency and quality of services they provide. Competition is affected by the
general availability of lendable funds, general and local economic conditions,
current interest rate levels and other factors that are not readily predictable.
Management expects that competition will become more intense in the
future due to changes in state and federal laws and regulations and the entry of
additional bank and nonbank competitors. See "Supervision and Regulation".
LENDING POLICY
We have sought to maintain a comprehensive lending policy that meets
the credit needs of each of the communities served by the Banks, including low-
and moderate-income customers, and to employ lending procedures and policies
consistent with this approach. All loans are subject to our written loan policy,
which is updated annually and which provides that lending officers have sole
authority to approve loans of various maximum amounts depending upon their
seniority and experience. Each bank's president has sole discretion to approve
loans in varying principal amounts up to specified limits for each president.
Each bank's board of directors reviews and approves loans that exceed
management's lending authority and, in certain instances, other types of loans.
New credit extensions are reviewed daily by each bank's senior management and at
least monthly by its board of directors.
3
The lending officers at each bank have authority to make loans only
in the county in which the Bank is located and its contiguous counties. Our
lending policy requires analysis of the borrower's projected cash flow and
ability to service the debt. For agricultural loans, which constitute a
significant portion of our consolidated loan portfolio, the lending officer
visits the borrower regularly during the growing season and re-evaluates the
loan in light of the borrower's updated cash flow projections. Each subsidiary
bank is assigned an approval limit by the holding company, which serves as the
maximum limit of new extensions of credit each Bank can approve. That approval
limit is reviewed annually by the Holding Company and adjusted as needed. All
extensions of credit in excess of the Banks' internal approval limits are
reviewed by ABC's Senior Credit Officer. Further approval by a Holding Company
loan committee may also be needed.Under our ongoing loan review program, all
loans are subject to sampling and objective review by an assigned loan reviewer
who is independent of the originating loan officer.
We actively market our services to qualified lending customers in
both the commercial and consumer sectors. Our commercial lending officers
actively solicit the business of new companies entering the market as well as
longstanding members of that market's business community. Through personalized
professional service and competitive pricing, we have been successful in
attracting new commercial lending customers. At the same time, we actively
advertise our consumer loan products and continually seek to make our lending
officers more accessible.
Each bank continually monitors its loan portfolio to identify areas
of concern and to enable management to take corrective action when necessary.
Each bank's lending officers and board of directors meet periodically to review
all past due loans, the status of large loans and certain other matters.
Individual lending officers are responsible for reviewing collection of past due
amounts and monitoring any changes in the financial status of the borrowers.
LENDING ACTIVITIES
General. We provide a broad range of commercial and retail lending
services to corporations, partnerships and individuals, including agricultural,
commercial business loans, commercial and residential real estate construction
and mortgage loans, loan participations, consumer loans, revolving lines of
credit and letters of credit. The loan department of each bank makes direct and
indirect loans to consumers and originates and services residential mortgages.
Real Estate Loans. Our real estate loans are for a term of years,
although rarely more than ten, over which period the principal thereof is
amortized, and are generally secured by residential real estate, farmland or
commercial real estate. Real estate related loans represent a significant
portion of the loan portfolio.
Agricultural Loans. Our agricultural loans are made for crop
production expenses or to finance the purchase of farm-related equipment.
Agricultural loans typically involve seasonal fluctuations in amounts. Although
we typically look to an agricultural borrower's cash flow as the principal
source of repayment, agricultural loans are also generally secured by a security
interest in the crops or the farm-related equipment and, in some cases, an
assignment of crop insurance or a mortgage on real estate. In addition, a
portion of our agricultural loans are guaranteed by the FmHA Guaranteed Loan
Program.
Commercial and Industrial Loans. General commercial and industrial
loans consist of loans made primarily to manufacturers, wholesalers and
retailers of goods, service companies and other industries. Management believes
that a significant portion of these loans are, to varying degrees,
agricultural-related. The Banks have also generated loans which are guaranteed
by the U. S. Small Business Administration. Management believes that making such
loans helps the local community and also provides ABC with a source of income
and solid future lending relationships as such businesses grow and prosper. The
primary repayment risk for commercial loans is the failure of the business due
to economic or financial factors. Although we typically look to a commercial
borrower's cash flow as the principal source of repayment for such loans, many
commercial loans are secured by inventory, equipment, accounts receivable and
other assets.
Consumer Lending. Our consumer loans include motor vehicle, home
improvement, home equity, student and signature loans and small personal credit
lines. Many of our Banks also offer credit cards to their customers.
Compliance with Community Reinvestment Act. Each of our Banks has a
Community Reinvestment Act Officer who develops and oversees that Bank's
Community Reinvestment Act program and makes monthly reports to that Bank's
board of directors. The Banks regularly sponsor or participate in community
programs designed to ascertain and meet the credit needs of each of the
communities they serve, including low and moderate income neighborhoods. Some of
these activities include sponsoring minority festivals during Black History
Month, participating in community meetings to explain the availability of Small
Business Administration, Farmers' Home Loan Administration and Regional
Development Center loans, and sponsoring educational seminars for area farmers.
In addition, each of our Banks participate in the Georgia Residential Finance
Authority program which makes low interest rate loans to rehabilitate low income
rental housing.
4
TRUST SERVICES
We provide personal trust and employee benefit services to our
customers through a contractual arrangement with Reliance Trust Company.
DEPOSITS
Checking, savings and money market accounts and other time accounts
are the primary sources of the Banks' funds for loans and investments. Our Banks
obtain most of their deposits from individuals and from businesses in their
respective market areas.
Our Banks have not had to attract new or retain old deposits by
paying depositors rates of interest on certificates of deposit, money market and
other interest-bearing accounts significantly above rates paid by other banks in
our Banks' respective market areas. In the future, increasing competition among
banks in our Banks' market areas may cause our Banks' interest margins to
shrink. The Banks have never accepted deposits for which a broker's commission
was paid.
INVESTMENT ACTIVITIES
Our investment policy is designed to maximize income from funds not
needed to meet loan demand in a manner consistent with appropriate liquidity and
risk objectives. Under this policy, our Banks may invest in federal, state and
municipal obligations, public housing authority bonds, industrial development
revenue bonds and Government National Mortgage Association ("GNMA") securities.
Our Banks' investments must satisfy certain investment quality criteria. Our
Bank's investments must be rated at least "BAA" by either Moody's or Standard
and Poor's. Securities rated below "A" are periodically reviewed for
creditworthiness. Our Banks may purchase non-rated municipal bonds only if the
issuer of such bonds is located in a Bank's general market area and such bonds
are determined by the purchasing Bank to have a credit risk no greater than the
minimum ratings referred to above. Industrial development authority bonds, which
normally are not rated, are purchased only if the issuer is located in the
purchasing Bank's market area and if the bonds are considered to possess a high
degree of credit soundness. Our Banks typically have not purchased a significant
amount of GNMA securities, which normally have higher yields than our Banks'
other investments.
While our investment policy permits the Banks to trade securities to
improve the quality of yields or marketability or to realign the composition of
the portfolio, the Banks historically have not done so to any significant
extent.
Our investment committee implements the investment policy and
portfolio strategies, monitors the portfolio and reports to each Bank's board
and ALCO committees. Reports on all purchases, sales, net profits or losses and
market appreciation or depreciation of the bond portfolio are reviewed by our
board of directors each month. Once a year, the written investment policy is
reviewed by our board of directors.
The Banks' securities are kept in safekeeping accounts at
correspondent banks.
ASSET/LIABILITY MANAGEMENT
Our objective is to manage our assets and liabilities to provide a
satisfactory, consistent level of profitability within the framework of
established cash, loan, investment, borrowing and capital policies. The overall
philosophy of our management to support asset growth primarily through growth of
core deposits, which include deposits of all categories made by individuals,
partnerships, corporations and other entities. See "Management's Discussion and
---
Analysis of Financial Condition and Results of Operations."
5
PROPERTIES
The table below sets forth the location, size and other information
with respect to ABC's real properties. Except for the leased Jekyll Island
property and two locations in Dothan, Alabama, all properties are owned by ABC
or the Banks and are unencumbered.
Approximate
Square
Offices Used By Footage
-------------------------------------------------------------- ---------------------------- -----------------
310 First Street, S.E., Moultrie, GA ABC 7,000
317 S. Main Street, Moultrie, GA ABC 2,200
308-314 First Street, S.E., Moultrie, GA ABC 4,000
24 Second Avenue, S. E., Moultrie, GA ABC 15,500
731 West Second Street, Tifton, GA ABC 5,580
305 South Main Street, Moultrie, GA ABC and American Bank 7,048
225 South Main Street, Moultrie, GA American Bank 9,000
1707 First Avenue, S.E., Moultrie, GA American Bank 5,500
137 Broad Street, Doerun, GA American Bank 3,860
2513 South Main Street, Moultrie, GA American Bank 3,973
322 First Street, S.E., Moultrie, GA American Bank 300
1000 West Screven Street, Quitman, GA Heritage Bank 11,530
Highway 133 West, Valdosta, GA Heritage Bank 1,100
3140 Inner Perimeter Road, Valdosta, GA Heritage Bank 3,462
2484 East Pinetree Boulevard, Thomasville, GA Thomas Bank 4,800
529 Pine Street, Coolidge, GA Thomas Bank 4,000
111 E. Eighth Street, Tifton, GA Citizens Security Bank 11,700
804 W. Second Street, Tifton, GA Citizens Security Bank 2,000
301 South Irwin Avenue, Ocilla, GA Citizens Security Bank 10,000
100 South Pearle Avenue, Douglas, GA Citizens Security Bank 3,100
201 South Broad Street, Cairo, GA Cairo Bank 10,000
Hwy. 84 Drive-in, Cairo, GA Cairo Bank 1,000
12 East Depot Street, Meigs, GA Cairo Bank 2,700
3299 Ross Clark Circle, Dothan, AL Southland Bank 21,918
1817 S. Oates St., Dothan, AL Southland Bank 2,500
1970 Reeves Street, Dothan, AL Southland Bank 2,500
204 Kirkland St., Abbeville, AL Southland Bank 5,300
211 Eufaula St., Clayton, AL Southland Bank 4,500
1140 S. Eufaula Ave., Eufaula, AL Southland Bank 2,650
208 Main St., Headland, AL Southland Bank 2,037
502 Second Street South, Cordele, GA Central Bank 5,800
1302 Sixteenth Avenue East, Cordele, GA Central Bank 300
509 16th Avenue, Cordele, GA Central Bank 1,300
2627 Dawson Road, Albany, GA First National Bank 8,750
1607 U. S. Highway 19 South, Leesburg, GA First National Bank 7,000
109 W. Third St., Donalsonville, GA M & F Bank 8,800
Hwy 374 and 253, Donalsonville, GA M & F Bank 840
162 East Crawford Street, Colquitt, GA M & F Bank 4,672
302 North Main Street, Trenton, FL Tri-County Bank 2,700
25365 West Newberry Road, Newberry, FL Tri-County Bank 3,933
3340 Cypress Mill Road, Brunswick, GA First Bank of Brunswick 8,500
5340 New Jesup Highway, Brunswick, GA First Bank of Brunswick 4,100
3811 Frederick Road, St. Simons Island, GA First Bank of Brunswick 7,500
18-B Beachview Drive, Jekyll Island, GA First Bank of Brunswick 2,305
6
EMPLOYEES
At December 31, 2001, ABC and our Banks employed approximately 515
employees. We consider our relationship with our employees to be excellent.
We have adopted two retirement plans for our employees, the ABC
Bancorp 401(k) Profit Sharing Plan and the ABC Bancorp Money Purchase Pension
Plan. These plans provide both deferral of compensation by our employees and
matching contributions by ABC. ABC and our Banks made contributions for all
eligible employees in 2001. We also maintain a comprehensive employee benefits
program providing, among other benefits, hospitalization and major medical
insurance and life insurance. Management considers these benefits to be
competitive with those offered by other financial institutions in our market
areas. Our employees are not represented by any collective bargaining group.
SUPERVISION AND REGULATION
GENERAL
As a bank holding company, we are subject to the regulation,
supervision and reporting requirements of the Federal Reserve Board, the Georgia
Department of Banking and Finance, the Alabama State Banking Department and the
Florida Department of Banking and Finance. Our Banks are Georgia, Alabama,
Florida and federally chartered banks. The FDIC to the full extent permitted by
law insures each of our Banks. As a result, our Banks are subject to the
supervision, examination and reporting requirements of the Georgia Department of
Banking and Finance, the Alabama State Banking Department, the Florida
Department of Banking and Finance, the FDIC and the OCC.
The Bank Holding Company Act requires every bank holding company to
obtain the prior approval of the Federal Reserve before:
. it may acquire direct or indirect ownership or control of any
voting shares of any bank if, after the acquisition, the bank
holding company will directly or indirectly own or control
more than 5% of the voting shares of the bank;
. it or any of its subsidiaries, other than a bank, may acquire
all or substantially all of the assets of any bank; or
. it may merge or consolidate with any other bank holding
company.
The Bank Holding Company Act further provides that the Federal Reserve
may not approve any transaction that would result in a monopoly or that would
substantially lessen competition in the banking business, unless the public
interest in meeting the needs of the communities to be served outweighs the
anti-competitive effects. The Federal Reserve is also required to consider the
financial and managerial resources and future prospects of the bank holding
companies and banks involved and the convenience and needs of the communities
to be served. Consideration of financial resources generally focuses on capital
adequacy, and consideration of convenience and needs issues focuses, in part,
on the performance under The Community Reinvestment Act of 1997, both of which
are discussed in more detail.
The Bank Holding Company Act generally prohibits a bank holding
company from engaging in activities other than:
. banking;
. managing or controlling banks or other permissible
subsidiaries; and
. acquiring or retaining direct or indirect control of any
company engaged in any activities other than activities
closely related to banking or managing or controlling banks.
7
GENERAL (CONTINUED)
The activities in which holding companies and their affiliates are
permitted to engage were substantially expanded by The Gramm-Leach-Bliley Act,
which was signed on November 12, 1999. The Gramm-Leach-Bliley Act repeals the
anti-affiliation provisions of The Glass-Steagall Act to permit the common
ownership of commercial banks, investment banks and insurance companies. The
Gramm-Leach-Bliley Act also amends The Bank Holding Company Act to permit a
financial holding company to, among other things, engage in any activity that
the Federal Reserve determines to be (i) financial in nature or incidental to
such financial activity or (ii) complementary to a financial activity and not a
substantial risk to the safety and soundness of depository institutions or the
financial system generally. The Federal Reserve must consult with the Secretary
of the Treasury in determining whether an activity is financial in nature or
incidental to a financial activity. Holding companies may continue to own
companies conducting activities which had been approved by federal order or
regulation on the day before The Gramm-Leach-Bliley Act was enacted. Effective
August 24, 2000, pursuant to a previously-filed election with the Federal
Reserve, ABC became a financial holding company.
In determining whether a particular activity is permissible, the
Federal Reserve considers whether performing the activity can be expected to
produce benefits to the public that outweigh possible adverse effects, such as
undue concentration of resources, decreased or unfair competition, conflicts of
interest or unsound banking practices. The Federal Reserve has the power to
order a bank holding company or its subsidiaries to terminate any activity or
control of any subsidiary when the continuation of the activity or control
constitutes a serious risk to the financial safety, soundness or stability of
any bank subsidiary of that bank holding company.
Our Banks are also subject to numerous state and federal statues and
regulations that affect their business, activities and operations, and each is
supervised and examined by one or more state or federal bank regulatory
agencies. The FDIC, the OCC, the Georgia Department of Banking and Finance, the
Alabama State Banking Department and the Florida Department of Banking and
Finance regularly examine the operations of our Banks and are given the
authority to approve or disapprove mergers, consolidations, the establishment of
branches and similar corporate actions. The FDIC, the OCC, the Georgia
Department of Banking and Finance, the Alabama State Banking Department and the
Florida Department of Banking and Finance also have the power to prevent the
continuance or development of unsafe or unsound banking practices or other
violations of law.
PAYMENT OF DIVIDENDS AND OTHER RESTRICTIONS
ABC is a legal entity separate and distinct from its subsidiaries.
There are various legal and regulatory limitations under federal and state law
on the extent to which our subsidiaries can pay dividends or otherwise supply
funds to ABC.
The principal source of ABC's cash revenues is dividends from its
subsidiaries, and there are certain limitations under federal and state laws on
the payment of dividends by our subsidiaries. The prior approval of applicable
regulatory authorities, as the case may be, is required if the total dividends
declared by any subsidiary Bank in any calendar year exceeds the Bank's net
profits (as defined) for that year combined with its retained net profits for
the preceding two calendar years, less any required transfers to surplus or a
fund for the retirement of any preferred stock or 50% of the Bank's net profits
for the previous year in the case of Georgia banks. The relevant federal and
state regulatory agencies also have authority to prohibit a state member bank or
bank holding company, which would include ABC and its Banks, from engaging in
what, in the opinion of such regulatory body, constitutes an unsafe or unsound
practice in conducting its business. The payment of dividends could, depending
upon the financial condition of the subsidiary, be deemed to constitute such an
unsafe or unsound practice.
Under Georgia law (which would apply to any payment of dividends by
the Georgia Banks to ABC), the prior approval of the Georgia Department of
Banking and Finance is required before any cash dividends may be paid by a state
bank if: (i) total classified assets at the most recent examination of such bank
exceed 80% of the equity capital (as defined, which includes the reserve for
loan losses) of such bank; (ii) the aggregate amount of dividends declared or
anticipated to be declared in the calendar year exceeds 50% of the net profits
(as defined) for the previous calendar year; or (iii) the ratio of equity
capital to adjusted total assets is less than 6%.
Retained earnings of our Banks available for payment of cash
dividends under all applicable regulations without obtaining governmental
approval were approximately $8.5 million as of December 31, 2001.
8
PAYMENT OF DIVIDENDS AND OTHER RESTRICTIONS (CONTINUED)
In addition, our Banks are subject to limitations under Section 23A
of the Federal Reserve Act with respect to extensions of credit to, investments
in, and certain other transactions with, ABC. Furthermore, loans and extensions
of credit are also subject to various collateral requirements.
The Federal Reserve has issued a policy statement on the payment of
cash dividends by bank holding companies, which expresses the Federal Reserve's
view that a bank holding company should pay cash dividends only to the extent
that the holding company's net income for the past year is sufficient to cover
both the cash dividends and a rate of earning retention that is consistent with
the holding company's capital needs, asset quality and overall financial
condition. The Federal Reserve also indicated that it would be inappropriate for
a holding company experiencing serious financial problems to borrow funds to pay
dividends. Furthermore, under the prompt corrective action regulations adopted
by the Federal Reserve, the Federal Reserve may prohibit a bank holding company
from paying any dividends if one or more of the holding company's bank
subsidiaries are classified as undercapitalized.
Bank holding companies are required to give the Federal Reserve prior
written notice of any purchase or redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, is equal to 10% or more of their consolidated
net worth. The Federal Reserve may disapprove such a purchase or redemption if
it determines that the proposal would constitute an unsafe or unsound practice
or would violate any law, regulation, Federal Reserve order, or any condition
imposed by, or written agreement with, the Federal Reserve. This notification
requirement does not apply to any company that meets the well-capitalized
standard for commercial banks, has a safety and soundness examination rating of
at least a "2" and is not subject to any unresolved supervisory issues. As of
December 31, 2001, ABC meets these requirements.
CAPITAL ADEQUACY
ABC must comply with the Federal Reserve's established capital
adequacy standards, and our Banks are required to comply with the capital
adequacy standards established by the FDIC and the OCC. The Federal Reserve has
promulgated two basic measures of capital adequacy for bank holding companies: a
risk-based measure and a leverage measure. A bank holding company must satisfy
all applicable capital standards to be considered in compliance.
The risk-based capital standards are designed to:
. make regulatory capital requirements more sensitive to
differences in risk profile among banks and bank holding
companies;
. account for off-balance-sheet exposure; and
. minimize disincentives for holding liquid assets.
Assets and off-balance-sheet items are assigned to broad risk
categories, each with appropriate weights. The resulting capital ratios
represent capital as a percentage of total risk-weighted assets and
off-balance-sheet items.
The minimum guideline for the ratio of total capital to risk-weighted
assets is 8%. At least half of total capital must be comprised of Tier 1
Capital, which is common stock, undivided profits, minority interests in the
equity accounts of consolidated subsidiaries and noncumulative perpetual
preferred stock, less goodwill and certain other intangible assets. The
remainder may consist of Tier 2 Capital, which is subordinated debt, other
preferred stock and a limited amount of loan loss reserves. During 2001, we
increased our consolidated ratios by issuing trust preferred securities in the
amount of $34,500,000 of which $25,933,000 (25% of total Tier 1 Capital) was
included in Tier 1 Capital and the balance included in Tier 2 Capital. At
December 31, 2001, ABC's total risk-based capital ratio and its Tier 1
risk-based capital ratio were 15.02% and 12.70%, respectively.
9
CAPITAL ADEQUACY (CONTINUED)
In addition, the Federal Reserve has established minimum leverage
ratio guidelines for bank holding companies. These guidelines provide for a
minimum ratio of Tier 1 Capital to average assets, less goodwill and certain
other intangible assets, of 3% for bank holding companies that meet specified
criteria. All other bank holding companies generally are required to maintain a
minimum leverage ratio of 4%. ABC's ratio at December 31, 2001 was 9.26%. The
guidelines also provide that bank holding companies experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
on intangible assets. Furthermore, the Federal Reserve has indicated that it
will consider a "tangible Tier 1 Capital leverage ratio" and other indicia of
capital strength in evaluating proposals for expansion or new activities. The
Federal Reserve has not advised ABC of any specific minimum leverage ratio or
tangible Tier 1 Capital leverage ratio applicable to it.
Our Banks are subject to risk-based and leverage capital requirements
adopted by the FDIC and the OCC that are substantially similar to those adopted
by the Federal Reserve for bank holding companies. All of our Banks were in
compliance with applicable minimum capital requirements as of December 31, 2001.
Neither ABC nor any of our Banks has been advised by any federal
banking agency of any specific minimum capital ratio requirement applicable to
it.
Failure to meet capital guidelines could subject a bank to a variety
of enforcement remedies, including issuance of a capital directive, the
termination of deposit insurance by the FDIC, a prohibition on taking brokered
deposits, and certain other restrictions on its business. As described below,
the FDIC can impose substantial additional restrictions upon FDIC-insured
depository institutions that fail to meet applicable capital requirements.
PROMPT CORRECTIVE ACTION
The Federal Deposit Insurance Act (or "FDI Act"), among other things,
requires the federal regulatory agencies to take "prompt corrective action" if a
depository institution does not meet minimum capital requirements. The FDI Act
establishes five capital tiers: "well capitalized", "adequately capitalized",
"undercapitalized", "significantly undercapitalized" and "critically
undercapitalized". A depository institution's capital tier will depend upon how
its capital levels compare to various relevant capital measures and certain
other factors, as established by regulation.
The federal bank regulatory agencies have adopted regulations
establishing relevant capital measurers and relevant capital levels applicable
to FDIC-insured banks. The relevant capital measures are the Total Capital
ratio, Tier 1 Capital ratio and the leverage ratio. Under the regulations, a
FDIC-insured bank will be:
. "well capitalized" if it has a Total Capital ratio of 10% or
greater, a Tier 1 Capital ratio of 6% or greater and a
leverage ratio of 5% or greater and is not subject to any
order or written directive by the appropriate regulatory
authority to meet and maintain a specific capital level for
any capital measure;
. "adequately capitalized" if it has a Total Capital ratio of 8%
or greater, a Tier 1 Capital ratio of 4% or greater and a
leverage ratio of 4% or greater (3% in certain circumstances)
and is not "well capitalized";
. "undercapitalized" if it has a Total Capital ratio of less
than 8%, a Tier 1 Capital ratio of less than 4% or a leverage
ratio of less than 4% (3% in certain circumstances);
. "significantly undercapitalized" if it has a Total Capital
ratio of less than 6%, a Tier 1 Capital ratio of less than 3%
or a leverage ratio of less than 3%; and
. "critically undercapitalized" if its tangible equity is equal
to or less than 2% of average quarterly tangible assets.
An institution may be downgraded to, or deemed to be in, a capital
category that is lower than is indicated by its capital ratios if it is
determined to be in an unsafe or unsound condition or if it receives an
unsatisfactory examination rating with respect to certain matters. As of
December 31, 2001, all of ABC's Banks had capital levels that qualify as "well
capitalized" under such regulations.
10
PROMPT CORRECTIVE ACTION (CONTINUED)
The FDI Act generally prohibits an FDIC-insured bank from making a
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the bank would thereafter be "undercapitalized".
"Undercapitalized" banks are subject to growth limitations and are required to
submit a capital restoration plan. The federal regulators may not accept a
capital plan without determining, among other things, that the plan is based on
realistic assumptions and is likely to succeed in restoring the bank's capital.
In addition, for a capital restoration plan to be acceptable, the bank's parent
holding company must guarantee that the institution will comply with such
capital restoration plan. The aggregate liability of the parent holding company
is limited to the lesser of: (i) an amount equal to 5% of the bank's total
assets at the time it became "undercapitalized"; and (ii) the amount which is
necessary (or would have been necessary) to bring the institution into
compliance with all capital standards applicable with respect to such
institution as of the time it fails to comply with the plan. If a bank fails to
submit an acceptable plan, it is treated as if it is "significantly
undercapitalized".
"Significantly undercapitalized" insured banks may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become "adequately capitalized", requirements to reduce total
assets and the cessation of receipt of deposits from correspondent banks.
"Critically undercapitalized" institutions are subject to the appointment of a
receiver or conservator. A bank that is not "well capitalized" is also subject
to certain limitations relating to so-called "brokered" deposits.
COMMUNITY REINVESTMENT ACT
The Community Reinvestment Act requires federal bank regulatory
agencies to encourage financial institutions to meet the credit needs of low-
and moderate-income borrowers in their local communities. An institution's size
and business strategy determines the type of examination that it will receive.
Large, retail-oriented institutions are examined using a performance-based
lending, investment and service test. Small institutions are examined using a
streamlined approach. All institutions may opt to be evaluated under a strategic
plan formulated with community input and pre-approved by the bank regulatory
agency.
The Community Reinvestment Act regulations provide for certain
disclosure obligations. Each institution must post a notice advising the public
of its right to comment to the institution and its regulator on the
institution's Community Reinvestment Act performance and to review the
institution's Community Reinvestment Act public file. Each lending institution
must maintain for public inspection a file that includes a listing of branch
locations and services, a summary of lending activity, a map of its communities
and any written comments from the public on its performance in meeting community
credit needs. The Community Reinvestment Act requires public disclosure of a
financial institution's written Community Reinvestment Act evaluations. This
promotes enforcement of Community Reinvestment Act requirements by providing the
public with the status of a particular institution's community reinvestment
record.
The Gramm-Leach-Bliley Act make various changes to The Community
Reinvestment Act. Among other changes, Community Reinvestment Act agreements
with private parties must be disclosed and annual Community Reinvestment Act
reports must be made to a bank's primary federal regulator. A bank holding
company will not be permitted to become a financial holding company and no new
activities authorized under The Gramm-Leach-Bliley Act may be commenced by a
holding company or by a bank financial subsidiary if any of its bank
subsidiaries received less than a "satisfactory" Community Reinvestment Act
rating in its latest Community Reinvestment Act examination.
PRIVACY
Financial institutions are required to disclose their policies for
collecting and protecting confidential information. Customers generally may
prevent financial institutions from sharing personal financial information with
nonaffiliated third parties except for third parties which market the
institutions' own products and services. Additionally, financial institutions
generally may not disclose consumer account numbers to any nonaffiliated third
party for use in telemarketing, direct mail marketing or other marketing through
electronic mail to consumers.
The Gramm-Leach-Bliley Act also includes provisions to protect
consumer privacy by prohibiting banks from disclosing non-public, personal,
financial information to unaffiliated parties without the consent of the
customer, and by requiring annual disclosure of the Banks' privacy policies.
Each Bank's primary regulator is responsible for promulgating rules to implement
these provisions.
11
LEGISLATIVE AND REGULATORY CHANGES
The Gramm-Leach-Bliley Act allows bank holding companies that are
"well managed" and "well capitalized" and whose depositor subsidiaries have
"satisfactory" or better Community Reinvestment Act ratings to become financial
holding companies that may engage in a substantially broader range of nonbanking
activities than are currently permissible, including insurance underwriting and
securities activities. Effective August 24, 2000, ABC became a financial holding
company.
FISCAL AND MONETARY POLICY
Banking is a business which depends on interest rate differentials.
In general, the difference between the interest paid by a bank on its deposits
and its other borrowings, an the interest received by an bank on its loans and
securities holdings, constitutes the major portion of a bank's earnings. Thus,
the earnings and growth of ABC will be subject to the influence of economic
conditions generally, both domestic and foreign, and also to the monetary and
fiscal policies of the United States and its agencies, particularly the Federal
Reserve. The Federal Reserve regulates the supply of money through various
means, including open market dealings in United States government securities,
the discount rate at which banks may borrow from the Federal Reserve and the
reserve requirements on deposits. The nature and timing of any changes in such
policies and their effect on ABC cannot be predicted.
Current and future legislation and the policies established by
federal and state regulatory authorities will affect ABC's future operations.
Banking legislation and regulations may limit our growth and the return to our
investors by restricting certain of our activities.
In addition, capital requirements could be changed and have the
effect of restricting our activities or requiring additional capital to be
maintained. We cannot predict what changes, if any, will be made to existing
federal and state legislation and regulations or the effect that such changes
may have on ABC's business.
FEDERAL HOME LOAN BANK SYSTEM
All of our Banks have correspondent relationships with the Federal
Home Loan Bank of Atlanta ("FHLB Atlanta"), which is one of 12 regional Federal
Home Loan Banks (or "FHLBs") that administer the home financing credit function
of savings companies. Each FHLB serves as a reserve or central bank for its
members within its assigned region. FHLBs are funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System and make
loans to members (i.e., advances) in accordance with policies and procedures,
established by the Board of Directors of the FHLB which are subject to the
oversight of the Federal Housing Finance Board. All advances from the FHLB are
required to be fully secured by sufficient collateral as determined by the FHLB.
In addition, all long-term advances are required to provide funds for
residential home financing.
FHLB Atlanta provides certain services to certain of our Banks such
as processing checks and other items, buying and selling Federal funds, handling
money transfers and exchanges, shipping coin and currency, providing security
and safekeeping of funds or other valuable items, and furnishing limited
management information and advice. As compensation for these services, the Banks
maintain certain balances with FHLB Atlanta in noninterest-bearing accounts.
Under federal law, the FHLBs are required to provide funds for the
resolution of troubled savings companies and to contribute to low- and
moderately-priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects.
Title 6 of the GLB Act, entitled the Federal Home Loan Bank System
Modernization Act of 1999 (called the "FHLB Modernization Act"), has amended the
Federal Home Loan Bank Act by allowing for voluntary membership and modernizing
the capital structure and governance of the FHLBs. The new capital structure
established under the FHLB Modernization Act sets forth new leverage and
risk-based capital requirements based on permanence of capital. It also requires
some minimum investment in the stock of the FHLBs of all member entities.
Capital will include retained earnings and two forms of stock: Class A stock
redeemable within six months, written notice and Class B stock redeemable within
five years written notice. The FHLB Modernization Act provides a transition
period to the new capital regime, which will not be effective until the FHLBs
enact implementing regulations. The FHLB Modernization Act also reduces the
period of time in which a member exiting the FHLB system must stay out of the
system.
12
ITEM 2. PROPERTIES
The principal properties of ABC consist of the properties of the
Banks. For a description of the properties of the Banks, see "Item 1 - Business
of ABC and the Banks - Properties" included elsewhere in this Annual Report.
ITEM 3. LEGAL PROCEEDINGS
Neither ABC nor any of the Banks is a party to, nor is any of their
property the subject of, any material pending legal proceedings, other than
ordinary routine proceedings incidental to the business of the Banks, nor to
the knowledge of the management of ABC are any such proceedings contemplated or
threatened against it or the Banks.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No matters were submitted to a vote of ABC's shareholders during the
fourth quarter of 2001.
ITEM 4.5 EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
executive officers of ABC.
Name, Age and Position with the Principal Occupation for the Last Five Years
Term as Officer Registrant and Other Directorships
---------------------------------- -------------------------- -----------------------------------------------------------
Kenneth J. Hunnicutt; 65; Chief Executive Officer, Chairman of the Board of ABC since May 2001, Chief
Officer since 1981 Director and Chairman of Executive Officer since 1994 and President from 1981 to
the Board 2001. Mr. Hunnicutt served as Senior President of
American Bank from 1989 to 1991 and as President of
American Bank from 1975 to 1989 and currently serves as a
director of each of the banks.
Mark D. Thomas; 48; President, Chief Operating President of ABC since May 2001 and Chief Operating
Officer since July 20, 1999 Officer and Director Officer since July 20, 1999 and a director thereof
since July 1999 Mr.Thomas served as Executive Vice
President of ABC Bancorp from July 1999 to May 2001.
Mr.Thomas served in various capacities, including
Senior Vice President and State Consumer Banking
Executive for Tennessee for First Union National Bank
from September 1977 through July 1999.
W. Edwin Lane, Jr; 47: Executive Vice President Executive Vice President and Chief Financial Officer of
Officer since January 1, 1995 and Chief Financial ABC since January 1, 1995. Mr. Lane served as Controller
Officer of First Liberty Bank, Macon, Georgia from August 1992 to
December 1994. Mr. Lane was associated with Mauldin &
Jenkins, Certified Public Accountants, from 1985 to 1992,
where he served as an audit manager from 1989 to 1992.
Officers serve at the discretion of the Board of Directors.
13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
(a) The Common Stock is listed on the Nasdaq National Market System (or
"Nasdaq-NMS") under the symbol "ABCB". The following table sets
forth: (a) the high and low bid prices for the common stock as quoted
on Nasdaq-NMS during 2001 and 2000; and (b) the amount of quarterly
dividends declared on the common stock during the periods indicated.
Calendar Period Bid Prices Cash
-------------------------------------- -------------------------- Dividends
2001 High Low Declared
-------------------------------------- ------------ ----------- --------------
First quarter $ 12.000 $ 9.125 $ .12
Second quarter 12.620 11.000 .12
Third quarter 13.500 11.060 .12
Fourth quarter 13.950 12.150 .12
Calendar Period Bid Prices Cash
-------------------------------------- -------------------------- Dividends
2000 High Low Declared
-------------------------------------- ------------ ----------- --------------
First quarter $ 11.125 $ 9.625 $ .10
Second quarter 11.000 9.500 .12
Third quarter 10.750 9.000 .12
Fourth quarter 10.500 8.000 .12
(b) As of March 1, 2001, there were approximately 2,000 holders of record
of the Common Stock, excluding individuals in security position
listings.
(c) ABC paid an annual dividend on its common stock of $.48 and $.46 per
share for fiscal years 2001 and 2000, respectively.
(d) On April 13, 2001, ABC consummated the merger of Tri-County Bank, a
Florida non-member bank, with and into Tri-County Merger Sub, Inc., a
Florida corporation and a wholly-owned subsidiary of ABC, whereby
Tri-County Bank became a wholly-owned subsidiary of ABC in accordance
with the terms of an Agreement and Plan of Merger by and among ABC,
Tri-County Merger Sub, Inc. and Tri-County Bank, which agreement was
filed as Exhibit 2.1 to ABC's Annual Report on Form 10-K for the year
ended December 31, 2000. Pursuant to the Tri-County Bank Agreement
and Plan of Merger, all of the issued and outstanding shares of
Tri-County Bank's common stock were converted into the right to receive
cash and an aggregate of 347,504 shares of ABC's Common Stock. These
shares of Common Stock were issued without registration under the
Securities Act of 1933, as amended, in reliance upon the exemption
from registration provided in Section 4(2) thereof. ABC based such
reliance upon factual representations made to ABC by the shareholders
of Tri-County Bank as to such shareholders' investment intent and
sophistication, among other things.
14
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table presents selected consolidated financial
information for ABC. The data set forth below are derived from the audited
consolidated financial statements of ABC. The selected financial data should be
read in conjunction with, and are qualified in their entirety by, the
Consolidated Financial Statements and the Notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere herein.
Year Ended December 31,
------------------------------------------------------------------------------
2001 2000 1999 1998 1997
-------------- ------------- ------------- ------------ -----------
(Dollars in Thousands, Except Per Share Data)
------------------------------------------------------------------------------
Selected Balance Sheet Data:
Total assets $ 1,176,886 $ 826,197 $ 789,460 $ 724,946 $ 691,886
Total loans 805,076 587,381 530,225 477,194 490,244
Total deposits 931,156 679,885 640,658 633,325 600,711
Investment securities 156,835 162,105 146,990 158,869 123,219
Shareholders' equity 104,148 80,656 76,016 71,834 68,153
Selected Income Statement Data:
Interest income $ 76,090 $ 68,976 $ 59,991 $ 60,217 $ 58,649
Interest expense 34,904 30,805 24,400 26,444 25,950
--------------- ------------ ------------- ------------- ------------
Net interest income 41,186 38,171 35,591 33,773 32,699
Provision for loan losses 4,566 1,712 2,154 5,505 2,731
Other income 11,725 8,215 7,752 9,376 7,736
Other expenses 34,020 30,233 27,942 27,996 27,139
--------------- ------------ ------------- ------------- ------------
Income before tax 14,325 14,441 13,247 9,648 10,565
Income tax expense 4,692 4,343 4,291 2,735 3,119
--------------- ------------ ------------- ------------- ------------
Net income $ 9,633 $ 10,098 $ 8,956 $ 6,913 $ 7,446
=============== ============ ============= ============= ============
Per Share Data:
Net income - basic $ 1.05 $ 1.19 $ 1.03 $ 0.79 $ 0.86
Net income - diluted 1.04 1.19 1.03 0.79 0.85
Book value 10.42 9.66 8.71 8.29 7.83
Tangible book value 7.88 8.84 7.84 7.32 6.76
Dividends 0.48 0.46 0.35 0.33 0.32
Profitability Ratios:
Net income to average total assets 1.00 % 1.27 % 1.23 % 0.99 % 1.10 %
Net income to average
stockholders' equity 10.30 13.19 11.93 10.07 11.35
Net interest margin 4.63 5.14 5.31 5.26 5.36
Efficiency ratio 64.30 65.18 64.47 64.88 67.12
15
SELECTED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
Year Ended December 31,
-----------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------- ------------- ------------- ------------- -------------
(Dollars in Thousands, Except Per Share Data)
-----------------------------------------------------------------------------
Loan Quality Ratios:
Net charge-offs to total loans 0.54 % 0.30 % 0.46 % 0.62 % 0.48 %
Reserve for loan losses to total loans
and OREO 1.85 1.67 1.86 2.13 1.55
Nonperforming assets to total loans
and OREO 1.67 0.95 1.15 1.99 2.41
Reserve for loan losses to
nonperforming loans 124.97 202.18 178.26 116.25 75.86
Reserve for loan losses to total
nonperforming assets 111.00 175.38 162.59 107.25 64.38
Liquidity Ratios:
Loans to total deposits 86.46 % 86.39 % 82.76 % 75.35 % 81.61 %
Loans to average earnings assets 90.56 79.05 79.17 74.35 80.43
Noninterest-bearing deposits to
total deposits 13.48 13.96 16.12 15.78 15.00
Capital Adequacy Ratios:
Common stockholders' equity to
total assets 8.85 % 9.76 % 9.63 % 9.91 % 9.85 %
Average total stockholders' equity to average
total assets 9.74 9.59 10.29 9.81 9.70
Dividend payout ratio 45.71 38.66 33.98 41.77 37.21
16
SELECTED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
SELECTED QUARTERLY FINANCIAL DATA:
Quarters Ended December 31, 2001
----------------------------------------------------------
4 3 2 1
------------- ------------- ------------- -------------
(Dollars in Thousands, Except Per Share Data)
----------------------------------------------------------
Selected Income Statement Data:
Interest income $ 19,784 $ 20,310 $ 18,200 $ 17,796
Net interest income 10,719 11,040 9,876 9,551
Net income 2,538 2,607 2,190 2,298
Per Share Data:
Net income - basic .26 .27 .25 .27
Net income - diluted .25 .27 .25 .27
Dividends .12 .12 .12 .12
Quarters Ended December 31, 2000
----------------------------------------------------------
4 3 2 1
------------- ------------- ------------- -------------
(Dollars in Thousands, Except Per Share Data)
----------------------------------------------------------
Selected Income Statement Data:
Interest income $ 17,988 $ 18,069 $ 16,756 $ 16,163
Net interest income 9,637 9,491 9,455 9,588
Net income 2,917 2,338 2,438 2,405
Per Share Data:
Net income - basic .35 .28 .29 .28
Net income - diluted .35 .28 .29 .28
Dividends .12 .12 .12 .10
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
ABC's 2001 Annual Report contains forward-looking statements in
addition to historical information. ABC cautions that there are various
important factors that could cause actual results to differ materially from
those indicated in the forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995; accordingly, there can be no
assurance that such indicated results will be realized.
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. In order to comply with the terms of the
safe harbor, ABC is required to note the variety of factors that could cause
ABC's actual results and experience to differ materially from the anticipated
results or other expectations expressed in ABC's forward-looking statements.
These factors include legislative and regulatory initiatives regarding
deregulation and restructuring of the banking industry; the extent and timing
of the entry of additional competition in ABC's markets; potential business
strategies, including acquisitions or dispositions of assets or internal
restructuring, that may be pursued by ABC, state and federal banking
regulations; changes in or application of environmental and other laws and
regulations to which ABC is subject; political, legal and economic conditions
and developments; financial market conditions and the results of financing
efforts; changes in commodity prices and interest rates; weather, natural
disasters and other catastrophic events; and other factors discussed in ABC's
filings with the Securities and Exchange Commission, including its Annual
Report on Form 10-K. The words "believe", "expect", "anticipate", "project",
and similar expressions signify such forward-looking statements.
Readers are cautioned not to place undue reliance on any
forward-looking statements made by or on behalf of ABC. Any such statement
speaks only as of the date the statement was made. ABC undertakes no obligation
to update or revise any forward-looking statements. Additional information with
respect to factors that may cause results to differ materially from those
contemplated by such forward-looking statements is included in the ABC's
current and subsequent filings with the Securities and Exchange Commission.
GENERAL
Our principal asset is the ownership of our Banks. Accordingly, our
results of operations are primarily dependent upon the results of operations of
our Banks. Our Banks conduct a commercial banking business which consists of
attracting deposits from the general public and applying those funds to the
origination of commercial, consumer and real estate loans (including commercial
loans collateralized by real estate). The Banks' profitablity depends primarily
on net interest income, which is the difference between interest income
generated from interest-earning assets (i.e., loans and investments) less the
interest expense incurred on interest-bearing liabilities (i.e., customer
deposits and borrowed funds). Net interest income is affected by the relative
amounts of interest-earning assets and interest-bearing liabilities, and the
interest rate paid and earned on these balances. Net interest income is
dependent upon the Banks' interest rate spread, which is the difference between
the average yield earned on its interest-earning assets and the average rate
paid on its interest-bearing liabilities. When interest-earning assets
approximates or exceeds interest-bearing liabilities, any positive interest
rate spread will generate interest income. The interest rate spread is impacted
by interest rates, deposit flows and loan demand. Additionally, and to a lesser
extent, the profitability of the Banks is affected by such factors as the level
of noninterest income and expenses, the provision for loan losses and the
effective tax rate. Noninterest income consists primarily of service charges on
deposit accounts and other fees and income from the sale of loans and
investment securities. Noninterest expenses consist of compensation and
benefits, occupancy-related expenses and other operating expenses.
18
RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Our results of operations are determined by our ability to
effectively manage interest income and expense, to minimize loan and investment
losses, to generate noninterest income and to control noninterest expense.
Since interest rates are determined by market forces and economic conditions
beyond our control, the ability to generate net interest income is dependent
upon the ability of the Banks to obtain an adequate spread between the rate
earned on interest-earning assets and the rate paid on interest-bearing
liabilities. Thus, the key performance measure for net interest income is the
interest margin or net yield, which is taxable-equivalent net interest income
divided by average earning assets.
The primary component of consolidated earnings is net interest
income, or the difference between interest income on interest-earning assets
and interest paid on interest-bearing liabilities. The net interest margin is
net interest income expressed as a percentage of average interest-earning
assets. Interest-earning assets consist of loans, investment securities and
federal funds sold. Interest-bearing liabilities consist of deposits, Federal
Home Loan Bank borrowings and other short-term borrowings. A portion of
interest income is earned on tax-exempt investments such as state and municipal
bonds. In an effort to state this tax-exempt income and its resultant yields on
a basis comparable to all other taxable investments, an adjustment is made to
analyze this income on a taxable-equivalent basis.
The net interest margin decrease 52 basis points to 4.68% in 2001 as
compared to 5.20% in 2000. This decrease resulted primarily from the monetary
policy pursued by the Federal Reserve during 2001. During 2001 the Federal
Reserve reduced the discount rate on 11 separate occasions resulting in a
reduction in the prime interest rate a total of 475 basis points from 9.50% on
January 1, 2001 to 4.75% on December 31, 2001. The prime interest rate on
December 31, 2001 was one-half of the effective rate on January 1, 2001. As a
result of these rate reductions, ABC's average yield on interest-earning assets
decreased 74 basis points to 8.61% in 2001 from 9.35% in 2000. The average
interest rate paid on interest-bearing liabilities decreased 34 basis points to
4.58% in 2001 from 4.92% in 2000. Average interest-earning assets increased
$146,017 or 19.65% to $889,028,000 in 2001 from $743,011,000 in 2000. Average
loans increased $127,766,000 or 22.39% to $698,292 in 2001 from $570,526,000 in
2000. Average yield on loans decreased 89 basis points to 9.33% in 2001 as
compared to 10.22% in 2000. Average investments decreased $314,000 or .20% to
$158,854,000 in 2001 from $159,168,000 in 2000. Average yield on investments
increased 13 basis points or 3.12% to 6.54% in 2001 as compared to 6.41% in
2000. Average interest-bearing deposits in and federal funds sold to other
banks increased $18,565,000 or 39.41% to $31,882,000 in 2001 from $13,317,000
in 2000. Although the average yield on deposits in and federal funds sold to
other banks decreased 394 basis points, the reduction in yield did not
significantly affect the average yield on earning assets due to the relatively
small volume of investments represented by such funds. The increase in average
interest-earning assets was funded by an increase in average deposits of
$126,872,000 or 19.40% to $780,864,000 in 2001 from $653,992,000 in 2000 and an
increase in average other borrowings of $$17,662,000 or 28.91% to $78,760,000
in 2001 from $61,098,000 in 2000. Average interest paid on total average
deposits decreased 28 basis points or 5.92% to 4.45% in 2001 as compared to
4.73% in 2000. Approximately 13% of the total average deposits were
noninterest-bearing deposits in 2001 as compared to approximately 14% in 2000.
During 2001, we acquired two new subsidiary Banks and two branches
of other banks which have now been merged with two of our Banks. These new bank
and branch acquisitions were accounted for as purchases. Following is a summary
of assets and liabilities related to the acquisitions of the two new subsidiary
Banks and one branch. The acquisition of one branch was not consummated until
December 24, 2001; consequently, the balances related to that branch have not
been included because the results would not be materially different had the
balances been included.
Interest-earning assets:
Loans $71,233,000
Investment securities 15,163,000
Deposit in and federal funds sold to banks 1,772,000
-----------
Total interest-earning assets $88,168,000
===========
Interest-bearing liabilities:
Deposits $83,528,000
Other borrowings 4,263,000
-----------
Total interest-bearing liabilities $87,791,000
===========
Noninterest-bearing deposits $10,326,000
===========
Total deposits $93,854,000
===========
19
The net interest margin decreased 20 basis points to 5.20% in
2000 as compared to 5.40% in 1999. This decrease in net interest margin
resulted from an increase of 31 basis points in average yield earned on
interest-earning assets accompanied by a greater increase of 57 basis points in
average rate paid on interest-bearing liabilities. The increase in average rate
paid on interest-bearing liabilities resulted from an increase of $37,450,000
or 11.24% on time deposits to $370,707,000 in 2000 as compared to $333,257,000
in 1999. Because we were more aggressive in obtaining time deposits, the
average rate paid on time deposits increased 58 basis points to 5.84% in 2000
as compared to 5.26% in 1999. We also increased our other borrowings, primarily
Federal Home Loan Bank advances, $22,978,000 or 71.04% to $55,322,000 in 2000
from $32,344,000 in 1999, with an increase of 117 basis points in average
interest paid to 6.55% in 2000 as compared to 5.38% in 1999. Average
interest-earning assets increased $73,259,000 or 10.94% to $743,011,000 in 2000
as compared to $669,752,000 in 1999. Average yield earned on interest-earning
assets increased 31 basis points to 9.35% in 2000 as compared to 9.04% in 1999.
Average loans increased $64,585,000 or 12.77% to $570,526,000 in 2000 from
$505,941,000 in 1999. Average yield earned on loans increased 22 basis points
to 10.22% as compared to 10.00% in 1999. Average investments increased
$10,197,000 to $159,168,000 in 2000 from $148,971,000 in 1999. Average yield
earned on investments increased 28 basis points to 6.41% in 2000 as compared to
6.13% in 1999. The change in average interest-bearing deposits in banks and the
related yield on those assets did not have a material effect on interest
income. Because increasing interest rates had a greater impact on interest paid
on interest-bearing liabilities than they had on yield earned on
interest-earning assets, our interest rate spread decreased 26 basis points to
4.43% in 2000 from 4.69% in 1999. Net interest income on a taxable-equivalent
basis was $38,665,000 in 2000 as compared to $36,150,000 in 1998, representing
an increase of $2,515,000 or 6.96%. The increase in average interest-earning
assets was funded by an increase in average deposits of $40,665,000 or 6.63%
and an increased in average borrowings of $24,091,000. In 2000, approximately
14% of the average deposits were noninterest-bearing deposits as compared to
approximately 15% in 1999.
The allowance for loan losses represents a reserve for potential
losses in the loan portfolio. The adequacy of the allowance for loan losses is
evaluated periodically based on a review of all significant loans, with a
particular emphasis on nonaccruing, past due and other loans that management
believes require attention. We segregate our loan portfolio by type of loan and
utilize this segregation in evaluating exposure to risks within the portfolio.
In addition, based on internal reviews and external reviews performed by
independent auditors and regulatory authorities, we further segregates our loan
portfolio by loan classifications within each type of loan based on an
assessment of risk for a particular loan or group of loans. Certain reviewed
loans require specific allowances. Allowances are provided for other types and
classifications of loans based on anticipated loss rates. Allowances are also
provided for loans that are reviewed by management and considered creditworthy
and loans for which management determines no review is required. In
establishing allowances, management considers historical loan loss experience
with an emphasis on current loan quality trends, current economic conditions
and other factors in the markets where the subsidiary banks operate. Factors
considered include among others, unemployment rates, effect of weather on
agriculture and significant local economic events, such as major plant closings.
We have developed a methodology for determining the adequacy of the
loan loss reserve which is followed by all our Banks and monitored by ABC's
senior credit officer and internal audit staff. Procedures provide for the
assignment of a risk rating for every loan included in our total loan
portfolio, with the exception of credit card receivables and overdraft
protection loans which are treated as pools for risk rating purposes. The risk
rating schedule provides seven ratings of which three ratings are classified as
pass ratings and four ratings are classified as criticized ratings. Each risk
rating is assigned a percent factor to be applied to the loan balance to
determine the adequate amount of reserve. Many of the larger loans require an
annual review by an independent loan officer. As a result of loan reviews
certain loans may be assigned specific reserve allocations. Other loans that
surface as problem loans may also be assigned specific reserves. Past due loans
are assigned risk ratings based on the number of days past due.
The provision for loan losses is a charge to earnings in the current
period to replenish the allowance and maintain it at a level management has
determined to be adequate. The provision for loan losses charged to earnings
amounted to $4,566,000 in 2001, $1,712,000 in 2000 and $2,154,000 in 1999. The
increase in the provision for loan losses of $2,854,000 in 2001 over the
provision in 2000 was required to replenish the reserve for greater net
charge-offs. Net charge-offs in 2001 increased $2,603,000 to $4,378,000 in 2001
as compared to $1,775,000 in 2000. The charge-off of $2,200,000 on one line of
credit in 2001 accounted for 77% of the increase. The remaining portion of the
increase in net charge-offs in 2001 was related to the increase in average
loans during 2001. During 2000 net loan charge-offs decreased $676,000 or
27.58% to $1,775,000 as compared to $2,451,000 in 1999. Due to the improvement
in the quality of the loan portfolio, which resulted from management's efforts
to resolve problem loan situations, management determined that the provision
for loan losses in 2000 could be significantly reduced from the provision
recorded in 1999. During 2001, average loans increased $127,766,000 or 22.39%
over 2000 as compared to an increase in average loans of $64,585,000 or 12.12%
in 2000 as compared to 1999. The allowance for loan losses increased $5,112,000
to $14,944,000 at December 31, 2001 from $9,832,000 at December 31, 2000.
Approximately $4,924,000 or 96% of the increase represented loan reserves
acquired in bank acquisitions in 2001. Net charge-offs represented 95.88% of
the provision for loan losses in 2001 as compared to 103.68% in 2000. Net loan
charge-offs for 2001 represented
20
..63% of average loans outstanding during the year as compared to .31% for 2000
and .48% for 1999. At December 31, 2001, the allowance for loan losses was
1.86% of total loans outstanding as compared to an allowance for loan losses of
1.67% of total loans outstanding at December 31, 2000 and 1.87% of total loans
outstanding at December 31, 1999. The determination of the allowance rests upon
management's judgment about factors affecting loan quality and assumptions
about the local and national economy. Management considers the year-end
allowance for loan losses adequate to cover potential losses in the
consolidated loan portfolio.
Average total assets increased $161,810,000 or 20.27% to
$960,031,000 in 2001 as compared to $798,221,000 in 2000. The increase in
average total assets was accompanied by an increase in average deposits of
$126,872,000 or 19.40% to $780,864,000 in 2001 from $653,992,000 in 2000 and an
increase of average borrowings of $17,662,000. Average total assets increased
$68,258,000 or 9.35% to $798,221,000 in 2000 as compared to $729,963,000 in
1999. The increase in average total assets was accompanied by an increase in
average total deposits of $40,665,000 or 6.63% to $653,992,000 in 2000 from
$613,327,000 in 1999 and an increase in average borrowings of $24,091,000.
NEW ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Standards ("SFAS") No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combination completed after June 30, 2001. SFAS No. 141 also specifies criteria
that intangible assets acquired in a purchase method business combination must
meet to be recognized and reported apart from goodwill. SFAS No. 142 also
requires that intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible
assets with estimable useful lives be amortized over their respective estimated
lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of."
ABC was required to adopt the provisions of SFAS No. 141 immediately
and must adopt SFAS No. 142 effective January 1, 2002. Accordingly, goodwill
and intangible assets determined to have an indefinite useful life acquired in
a purchase business combination completed after June 30, 2001, but before SFAS
No. 142 is adopted, will not be amortized, but will continue to be evaluated
for impairment in accordance with the appropriate pre-SFAS No. 142 accounting
literature. Goodwill and intangible assets acquired in business combinations
completed before July 1, 2001 will continue to be amortized and tested for
impairment in accordance with the appropriate pre-SFAS No. 142 accounting
requirements in effect prior to the adoption of SFAS No. 142.
SFAS No. 141 requires upon adoption of SFAS No. 142 that we evaluate
our existing intangible assets and goodwill that were acquired in a prior
purchase business combination, and to make any necessary reclassifications in
order to conform with the new criteria in SFAS No. 141 for recognition apart
from goodwill. Upon adoption of SFAS No. 142, we will be required to reassess
the useful lives and residual values of all intangible assets acquired, and
make any necessary amortization period adjustments by the end of the first
interim period after adoption. In addition, to the extent an intangible asset
is identified as having an indefinite useful life, we will be required to test
the intangible asset for impairment in accordance with the provisions of SFAS
No. 142 within the first interim period. Any impairment loss will be measured
as of the date of adoption and recognized as the cumulative effect of a change
in accounting principle in the first interim period.
In connection with SFAS No. 142's transitional goodwill impairment
evaluation, the statement requires us to perform an assessment of whether there
is an indication that goodwill is impaired as of the date of adoption. Any
transitional impairment loss will be recognized as the cumulative effect of a
change in accounting principle in our statement of earnings.
ABC is required to adopt SFAS No. 142 on January 1, 2002. Our
unamortized goodwill and other intangible assets on January 1, 2002 total $25.3
million, the majority of which will be subject to the transition provisions of
SFAS Nos. 141 and 142. Amortization expense related to goodwill and other
intangibles was $l,l85,000 and $804,000 for the years ended December 31, 2001
and December 31, 2000, respectively. Because of the extensive effort needed to
comply with the adoption of SFAS Nos. 141 and 142, it is not practicable to
reasonably estimate the impact of adopting these statements on our financial
statements at the date of this annual report, including whether we will be
required to recognize any transitional impairment losses as the cumulative
effect of a change in accounting principle. However, we believe that the
adoption of these statements will not have a material impact on our financial
statements.
21
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ABC is exposed only to U. S. Dollar interest rate changes and,
accordingly, we manage exposure by considering the possible changes in the net
interest margin. We do not have any trading instruments nor do we classify any
portion of the investment portfolio as held for trading. We do not engage in
any hedging activities or enter into any derivative instruments with a higher
degree of risk than mortgage-backed securities, which are commonly, pass
through securities. Finally, we have no exposure to foreign currency exchange
rate risk, commodity price risk, and other market risks.
Interest rates play a major part in the net interest income of a
financial institution. The sensitivity to rate changes is known as "interest
rate risk." The repricing of interest earning assets and interest-bearing
liabilities can influence the changes in net interest income. As part of our
asset/liability management program, the timing of repriced assets and
liabilities is referred to as Gap management. Our policy is to maintain a Gap
ratio in the one-year time horizon of .80 to 1.20. As indicated by the Gap
analysis included in this annual report, the Company is somewhat asset
sensitive in relation to changes in market interest rates. Being asset
sensitive would result in net interest income increasing in a rising rate
environment and decreasing in a declining rate environment. See
"Asset/Liability Management" included in this annual report.
ABC uses simulation analysis to monitor changes in net interest
income due to changes in market interest rates. The simulation of rising,
declining and flat interest rate scenarios allow management to monitor and
adjust interest rate sensitivity to minimize the impact of market interest rate
swings. The analysis of the impact on net interest income over a twelve-month
period is subjected to a gradual 200 basis point increase or decrease in market
rates on net interest income and is monitored on a quarterly basis. The most
recent simulation model projects net interest income would increase 3.79% if
rates rise gradually over the next year. On the other hand, the model projects
net interest income to decrease 4.17% if rates decline over the next year.
22
SELECTED STATISTICAL INFORMATION OF ABC BANCORP
The following statistical information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operation" and the financial statements and related notes included elsewhere
in this Annual Report and in the documents incorporated herein by reference.
Average Balances and Net Income Analysis
The following tables set forth the amount of the ABC's interest income
or interest expense for each category of interest-earning assets and
interest-bearing liabilities and the average interest rate for total
interest-earning assets and total interest-bearing liabilities, net interest
spread and net yield on average interest-earning assets. Federally tax-exempt
income is presented on a taxable-equivalent basis assuming a 34% federal tax
rate.
Year Ended December 31,
-----------------------------------------------------------------------------------------------------
2001 2000 1999
------------------------------ -------------------------------- ---------------------------------
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Paid Balance Expense Rate Paid Balance Expense Rate Paid
---------- -------- --------- ----------- --------- ---------- ---------- --------- -----------
(Dollars in Thousands)
-----------------------------------------------------------------------------------------------------
ASSETS
Interest-earning assets:
Loans, net of unearned
interest $ 698,292 $ 65,157 9.33 % $ 570,526 $ 58,328 10.22% $ 505,941 $ 50,603 10.00%
Investment securities:
Taxable 141,378 9,072 6.42 139,928 8,750 6.25 127,515 7,488 5.87
Nontaxable 17,476 1,317 7.54 19,240 1,453 7.55 21,456 1,645 7.67
Interest-bearing deposits
in banks 30,285 943 3.11 13,317 939 7.05 14,840 814 5.49
Federal funds sold 1,597 49 3.07 - - - - -
---------- --------- ---------- --------- ---------- ---------
Total interest-earning
assets 889,028 76,538 8.61 743,011 69,470 9.35 669,752 60,550 9.04
---------- --------- ---------- --------- ---------- ---------
Noninterest-earning assets:
Cash 30,270 23,963 26,391
Allowance for loan.losses (12,121) (10,144) (10,124)
Unrealized gain (loss) on
available for sale
securities 3,274 (2,007) 252
Other assets 49,580 43,398 43,692
----------- ---------- ----------
Total noninterest-
earning assets 71,003 55,210 60,211
---------- ---------- -----------
Total assets $ 960,031 $ 798,221 $ 729,963
========== ========== ===========
23
AVERAGE BALANCES AND NET INCOME ANALYSIS (CONTINUED)
Year Ended December 31,
-----------------------------------------------------------------------------------------------------
2001 2000 1999
------------------------------ -------------------------------- ---------------------------------
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Paid Balance Expense Rate Paid Balance Expense Rate Paid
---------- -------- --------- ----------- --------- ---------- ---------- --------- -----------
(Dollars in Thousands)
-----------------------------------------------------------------------------------------------------
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Interest-bearing liabilities:
Savings and interest-bearing
demand deposits $ 230,476 $ 5,379 2.33 % $ 194,895 $ 5,087 2.61 % $ 190,745 $ 4,904 2.57 %
Time deposits 452,407 25,057 5.54 370,707 21,666 5.84 333,257 17,520 5.26
Other short-term borrowings 4,523 199 4.40 5,776 428 7.41 4,663 237 5.08
Other borrowings 69,159 3,768 5.45 55,322 3,624 6.55 32,344 1,739 5.38
Trust preferred securities 5,078 501 9.87 - - - - - -
--------- -------- --------- --------- --------- --------
Total interest-bearing
liabilities 761,643 34,904 4.58 626,700 30,805 4.92 561,009 24,400 4.35
--------- -------- -------- --------- --------- --------
Noninterest-bearing
liabilities
and stockholders' equity:
Demand deposits 97,981 88,390 89,325
Other liabilities 6,877 6,573 4,540
Stockholders' equity 93,530 76,558 75,089
-------- --------- ----------
Total noninterest-bearing
liabilities and
stockholders' equity 198,388 171,521 168,954
-------- -------- ---------
Total liabilities and
stockholders' equity $ 960,031 $ 798,221 $ 729,963
========= ========= ==========
Interest rate spread 4.03 % 4.43 % 4.69 %
========= ======== =======
Net interest income $ 41,634 $ 38,665 $ 36,150
======== ========== =========
Net interest margin 4.68 % 5.20 % 5.40 %
========= ======== ========
24
RATE AND VOLUME ANALYSIS
The following table reflects the changes in net interest income
resulting from changes in interest rates and from asset and liability volume.
Federally tax-exempt interest is presented on a taxable-equivalent basis
assuming a 34% federal tax rate. The change in interest attributable to rate has
been determined by applying the change in rate between years to average balances
outstanding in the later year. The change in interest due to volume has been
determined by applying the rate from the earlier year to the change in average
balances outstanding between years. Thus, changes that are not solely due to
volume have been consistently attributed to rate.
Year Ended December 31,
---------------------------------------------------------------------------------
2001 vs. 2000 2000 vs. 1999
---------------------------------------- ----------------------------------------
Increase Changes Due To Increase Changes Due To
-------------------------- --------------------------
(Decrease) Rate Volume (Decrease) Rate Volume
------------ ------------ ------------ ------------- ------------- ------------
(Dollars in Thousands)
---------------------------------------------------------------------------------
Increase (decrease) in:
Income from earning assets:
Interest and fees on loans $ 6,829 $ (6,233) $ 13,062 $ 7,725 $ 1,265 $ 6,460
Interest on securities:
Taxable 322 231 91 1,262 533 729
Tax exempt (136) (3) (133) (192) (22) (170)
Interest-bearing deposits in banks 4 (1,192) 1,196 125 209 (84)
Interest on federal funds 49 - 49 - - -
------------ ------------ ------------ ------------- ------------- ------------
Total interest income 7,068 (7,197) 14,265 8,920 1,985 6,935
------------ ------------ ------------ ------------- ------------- ------------
Expense from interest-bearing liabilities:
Interest on savings and interest-
bearing demand deposits 292 (637) 929 183 76 107
Interest on time deposits 3,391 (1,384) 4,775 4,146 2,177 1,969
Interest on short-term borrowings (229) (136) (93) 191 134 57
Interest on other borrowings 144 (762) 906 1,885 650 1,235
Interest on trust preferred securities 501 - 501 - - -
------------ ------------ ------------ ------------- ------------- ------------
Total interest expense 4,099 (2,919) 7,018 6,405 3,037 3,368
------------ ------------ ------------ ------------- ------------- ------------
Net interest income $ 2,969 $ (4,278) $ 7,247 $ 2,515 $ (1,052) $ 3,567
============ ============ ============ ============= ============= ============
25
NONINTEREST INCOME
Service charges on deposit accounts increased $1,328,000 or 20.77% to
$7,721,000 in 2001 as compared to $6,393,000 in 2000 on an increase in average
deposits of $126,872,000 or 19.58% to $780,864,000 in 2001 from $653,992,000 in
2000. $549,000 or 41.34% of the increase in service charges and $93,854,000 or
73.98% of the increase in average deposits were attributable to the 2001 bank
acquisitions. Service charges on deposit accounts increased $697,000 or 12.24%
to $6,393,000 in 2000 as compared to $5,696,000 in 1999 on an increase in
average deposits of $40,665,000 or 6.63% to $653,992,000 in 2000 from
$613,327,000 in 1999. The increase in service charges on deposit accounts was
attributable primarily to the increase in average deposits. Other service
charges, commissions and fees increased $201,000 or 32.32% to $823,000 in 2001
from $622,000 in 2000. Approximately $15,000 or 7.46% of the increase was
attributable to the 2001 bank acquisitions. The remaining increase in other
service charges, commissions and fees relate to increased activity in the sale
of annuities and other financial instruments and increased emphasis on credit
life insurance that generated additional fee income. Origination fees on
mortgage loans increased $491,000 or 121.23% to $896,000 in 2001 from $405,000
in 2000. The significant increase in mortgage fee income resulted from the
volume of mortgage refinancing generated by the decrease in mortgage rates.
Approximately $134,000 or 27.29% of the increase was attributable to First Bank
of Brunswick acquired in 2001. Origination fees on mortgage loans decreased
$383,000 or 48.64% to $405,000 in 2000 as compared to $788,000 in 1999. This
decrease was attributable to the decrease in mortgage lending activities,
particularly the refinancing of mortgage loans, resulting from the stabilization
of interest rates during 2000. In 2001, we realized $1,253,000 in gain on sale
of securities. There were no sales of securities in 2000. In 1999, we incurred a
loss of $91,000 on sale of securities. All other noninterest income increased
$237,000 or 29.81% to $1,032,000 in 2001 from $795,000 in 2002, of which
$215,000 or 90.72% was attributable to the 2001 bank acquisitions.
Following is a comparison of noninterest income for 2001, 2000 and
1999.
Year Ended December 31,
--------------------------------------------------
2001 2000 1999
--------------- --------------- --------------
(Dollars in Thousands)
--------------------------------------------------
Service charges on deposit accounts $ 7,721 $ 6,393 $ 5,696
Mortgage origination fees 896 405 788
Other service charges, commissions and fees 823 622 423
Gain (loss) on sale of securities 1,253 - (91)
Other income 1,032 795 936
--------------- --------------- --------------
$ 11,725 $ 8,215 $ 7,752
=============== =============== ==============
NONINTEREST EXPENSE
Salaries and employee benefits increased $1,746,000 or 10.63% to
$18,166,000 in 2001 from $16,420,000 in 2000. Approximately $1,627,000 or 93.18%
of the increase was attributable to the 2001 bank acquisitions. Salaries and
employee benefits increased $1,534,000 or 10.30% to $16,420,000 in 2000 from
$14,886,000 in 1999. Salaries increased $547,000 (4.98%); bonuses increased
$468,000 (47.76%); retirement expense increased $242,000 (34.23%); and all other
employee benefits, including stock options and other grants, insurance and
payroll taxes, increased $277,000 (12.44%). Stock options and other grants
increased $192,000.
Equipment and occupancy expense remained fairly constant during 2001,
2000 and 1999. Equipment and occupancy increased $430,000 or 9.91% to $4,768,000
in 2001 from $4,338,000 in 2000. Approximately $407,000 or 94.65% of the
increase was attributable to the 2001 acquisitions. Equipment and occupancy
expense increased $147,000 or 3.51% to $4,338,000 in 2000 as compared to
$4,191,000 in 1999. The increase in 2000 was attributable to an increase in
depreciation expense of $201,000 over depreciation expense for 1999.
Amortization of intangible assets increased $381,000 to $1,185,000 in
2001 from $804,000 in 2000. The entire amount of the increase resulted from the
amortization of intangible assets arising from the 2001 acquisitions.
Amortization of intangible assets remained the same in 2000 as the amount
charged to expense in 1999.
26
NONINTEREST EXPENSE (CONTINUED)
Data processing fees increased $103,000 to $1,250,000 in 2001 from
$804,000 in 2000. Approximately $35,000, representing one-third of the increase
related to the 2001 acquisitions. The remaining increase was attributable to
increased volume of financial data processed in 2001 as compared with 2000. Data
processing fees increased $456,000 to $1,147,000 in 2000 as compared to $691,000
in 1999. Approximately $200,000 of the increase was attributable to management's
decision in 2000 to classify certain charges as data processing fess that were
charged to other expense in 1999. The reclassification of these charges in 1999
to data processing fees was not considered necessary. In addition, we installed
voice response units in all the Banks that accounted for an increase of
approximately $84,000 in 2000. Also, a billing error in 1999 resulted in the
payment of an additional $100,000 in 2000 that related to data processing in
1999.
Following is a comparison of noninterest expense for 2001, 2000 and
1999.
Year Ended December 31,
----------------------------------------------------
2001 2000 1999
--------------- --------------- ---------------
(Dollars in Thousands)
----------------------------------------------------
Salaries and employee benefits $ 18,166 $ 16,420 $ 14,886
Equipment and occupancy 4,768 4,338 4,191
Amortization of intangible assets 1,185 804 804
Data processing fees 1,250 1,147 691
Other expense 8,651 7,524 7,370
--------------- --------------- ---------------
$ 34,020 $ 30,233 $ 27,942
=============== =============== ===============
ASSET/LIABILITY MANAGEMENT
A principal objective of our asset/liability management strategy is to
minimize its exposure to changes in interest rates by matching the maturity and
repricing horizons of interest-earning assets and interest-bearing liabilities.
This strategy is overseen in part through the direction of our Asset and
Liability Committee (the "ALCO Committee") which establishes policies and
monitors results to control interest rate sensitivity.
As part of our interest rate risk management policy, the ALCO Committee
examines the extent to which its assets and liabilities are "interest
rate-sensitive" and monitors its interest rate-sensitivity "gap". An asset or
liability is considered to be interest rate sensitive if it will reprice or
mature within the time period analyzed, usually one year or less. The interest
rate-sensitivity gap is the difference between the interest-earning assets and
interest-bearing liabilities scheduled to mature or reprice within such time
period. A gap is considered positive when the amount of interest rate-sensitive
assets exceeds the amount of interest rate-sensitive liabilities. A gap is
considered negative when the amount of interest rate-sensitive liabilities
exceeds the interest rate-sensitive assets. During a period of rising interest
rates, a negative gap would tend to adversely affect net interest income, while
a positive gap would tend to result in an increase in net interest income.
During a period of falling interest rates, a negative gap would tend to result
in an increase in net interest income, while a positive gap would tend to
adversely affect net interest income. If ABC's assets and liabilities were
equally flexible and moved concurrently, the impact of any increase or decrease
in interest rates on net interest income would be minimal.
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the ALCO Committee also evaluates how the repayment of
particular assets and liabilities is impacted by changes in interest rates.
Income associated with interest-earning assets and costs associated with
interest-bearing liabilities may not be affected uniformly by changes in
interest rates. In addition, the magnitude and duration of changes in interest
rates may have a significant impact on net interest income. For example,
although certain assets and liabilities may have similar maturities or periods
of repricing, they may not react identically to changes in market interest
rates. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market interest rates, while interest rates on
other types may lag behind changes in general market rates. In addition, certain
assets, such as adjustable rate mortgage loans, have features (generally
referred to as "interest rate caps") which limit changes in interest rates on a
short-term basis and over the life of the asset. In the event of a change in
interest rates, prepayment and early withdrawal levels also could deviate
significantly from those assumed in calculating the interest-rate gap. The
ability of many borrowers to service their debts also may decrease in the event
of an interest-rate increase.
27
The following table sets forth the distribution of the repricing of our
earning assets and interest-bearing liabilities as of December 31, 2001, the
interest rate sensitivity gap (i.e., interest rate sensitive assets divided by
interest rate sensitivity liabilities), the cumulative interest rate sensitivity
gap ratio (i.e., interest rate sensitive assets divided by interest rate
sensitive liabilities) and the cumulative sensitivity gap ratio. The table also
sets forth the time periods in which earning assets and liabilities will mature
or may reprice in accordance with their contractual terms. However, the table
does not necessarily indicate the impact of general interest rate movements on
the net interest margin since the repricing of various categories of assets and
liabilities is subject to competitive pressures and the needs of our customers.
In addition, various assets and liabilities indicated as repricing within the
same period may in fact reprice at different times within such period and at
different rates.
At December 31, 2001
--------------------------------------------------------------------------
Maturing or Repricing Within
--------------------------------------------------------------------------
Zero to Three One to Over
Three Months to Five Five
Months One Year Years Years Total
------------ ------------- ------------- ------------- -------------
(Dollars in Thousands)
--------------------------------------------------------------------------
Earning assets:
Interest-bearing deposits in banks $ 106,172 $ - $ - $ - $ 106,172
Federal funds sold 44 - - - 44
Investment securities 27,767 98,653 23,092 7,323 156,835
Loans 196,600 289,844 305,301 13,331 805,076
------------ -------------- ------------- ------------ ------------
330,583 388,497 328,393 20,654 1,068,127
------------ -------------- ------------- ------------ ------------
Interest-bearing liabilities:
Interest-bearing demand deposits /(1)/ - 80,105 174,196 - 254,301
Savings /(1)/ - 21,888 40,648 - 62,536
Certificates less than $100,000 99,138 195,937 37,160 - 332,235
Certificates, $100,000 and over 50,944 89,417 16,201 - 156,562
Other short-term borrowings 3,792 - - - 3,792
Other borrowings 36,607 196 3,301 55,189 95,293
Trust preferred securities - - - 34,500 34,500
------------ -------------- ------------- ------------ ------------
190,481 387,543 271,506 89,689 939,219
------------ -------------- ------------- ------------ ------------
Interest rate sensitivity gap $ 140,102 $ 954 $ 56,887 $ (69,035) $ 128,908
============ ============== ============= ============ ============
Cumulative interest rate sensitivity gap $ 140,102 $ 141,056 $ 197,943 $ 128,908
============ ============== ============= ============
Interest rate sensitivity gap ratio 1.74 1.00 1.21 .23
============ ============== ============= ============
Cumulative interest rate sensitivity gap ratio 1.74 1.24 1.23 1.14
============ ============== ============= ============
/(1)/ The Company has found that NOW and money-market checking deposits and
savings deposits reprice between three months and one year or between
one to five years depending on the competition in the market areas
where the deposits are located. Therefore, it has placed portions of
these deposits in the three months to one year horizon and the one to
five years horizon based on estimated amounts repricing in each
horizon.
28
INVESTMENT PORTFOLIO
ABC manages the mix of asset and liability maturities in an effort to
control the effects of changes in the general level of interest rates on net
interest income. See "--Asset/Liability Management." Except for its effect on
the general level of interest rates, inflation does not have a material impact
on the us due to the rate variability and short-term maturities of its earning
assets. In particular, approximately 60% of the loan portfolio is comprised of
loans which mature or reprice within one year or less. Mortgage loans, primarily
with five to fifteen year maturities, are also made on a variable rate basis
with rates being adjusted every one to five years. Additionally, 81% of the
investment portfolio matures or reprices within one year or less.
TYPES OF INVESTMENTS
SECURITIES
Following is a summary of the carrying value of investments as of the
end of each reported period:
December 31,
---------------------------------------------------
2001 2000 1999
-------------- --------------- ---------------
(Dollars in Thousands)
---------------------------------------------------
U. S. Government and agency securities $ 50,473 $ 61,186 $ 48,811
State and municipal securities 5,339 19,468 20,134
Corporate debt securities 6,715 6,130 4,344
Mortgage-backed securities 89,111 71,221 69,477
Marketable equity securities 496 614 772
Restricted equity securities 4,701 3,486 3,452
-------------- --------------- ---------------
$ 156,835 $ 162,105 $ 146,990
============== =============== ===============
MATURITIES
The amounts of investments in securities in each category as of
December 31, 2001 are shown in the following table according to contractual
maturity classifications (1) one year or less, (2) after one year through five
years, (3) after five years through ten years, and (4) after ten years.
U. S. Treasury
and Other U. S.
Government Agencies State and
and Corporations Political Subdivisions
Yield Yield
Amount (1) Amount (1) (2)
--------------- ------------ -------------- ------------
(Dollars in Thousands)
-------------------------------------------------------------
Maturity:
One year or less $ 20,435 5.58 % $ 2,631 7.45 %
After one year through five years 97,275 5.41 1,378 7.67
After five years through ten years 22,065 6.75 1,027 7.34
After ten years 7,020 6.72 303 5.90
--------------- ------------ -------------- ------------
$ 146,795 5.70 % $ 5,339 7.40 %
=============== ============ ============== ============
(1) Yields were computed using coupon interest, adding discount accretion
or subtracting premium amortization, as appropriate, on a ratable basis
over the life of each security. The weighted average yield for each
maturity range was computed using the acquisition price of each
security in that range.
(2) Yields on securities of state and political subdivisions are stated on
a taxable-equivalent basis, using a tax rate of 34%.
29
LOAN PORTFOLIO
TYPES OF LOANS
Management believes that our loan portfolio is adequately diversified.
The loan portfolio contains no foreign or energy-related loans or significant
concentrations in any one industry, with the exception of residential and
commercial real estate mortgages, which constituted approximately 53% of our
loan portfolio as of December 31, 2001. The amount of loans outstanding at the
indicated dates is shown in the following table according to type of loans.
December 31,
-----------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------- ------------- ------------- ------------- -------------
(Dollars in Thousands)
-----------------------------------------------------------------------------
Commercial and financial $ 152,097 $ 109,647 $ 83,385 $ 70,282 $ 72,171
Agricultural 39,878 34,840 29,694 36,567 41,882
Real estate - construction 24,650 14,046 13,228 8,439 13,117
Real estate - mortgage, farmland 63,533 57,253 59,018 56,595 55,245
Real estate - mortgage, commercial 225,470 160,456 150,075 123,854 108,339
Real estate - mortgage, residential 202,447 128,614 117,936 114,930 127,767
Consumer installment loans 91,557 76,076 59,529 65,307 68,959
Other 5,444 6,449 17,360 1,220 2,764
------------- ------------- ------------- ------------- -------------
805,076 587,381 530,225 477,194 490,244
Less reserve for possible loan losses 14,944 9,832 9,895 10,192 7,627
------------- ------------- ------------- ------------- -------------
Loans, net $ 790,132 $ 577,549 $ 520,330 $ 467,002 $ 482,617
============= ============= ============= ============= =============
MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
Total loans as of December 31, 2001 are shown in the following table
according to maturity or repricing opportunities (1) one year or less, (2) after
one year through five years, and (3) after five years.
(Dollars in
Thousands)
---------------
Maturity or Repricing Within:
One year or less $ 486,444
After one year through five years 305,301
After five years 13,331
---------------
$ 805,076
===============
The following table summarizes loans at December 31, 2001 with the due
dates after one year which (1) have predetermined interest rates and (2) have
floating or adjustable interest rates.
(Dollars in
Thousands)
---------------
Predetermined interest rates $ 313,238
Floating or adjustable interest rates 5,394
---------------
$ 318,632
===============
Records were not available to present the above information in each
category listed in the first paragraph above and could not be reconstructed
without undue burden.
30
NONPERFORMING LOANS
A loan is placed on nonaccrual status when, in management's judgment,
the collection of the interest income appears doubtful. Interest receivable that
has been accrued in prior years and is subsequently determined to have doubtful
collectibility is charged to the allowance for possible loan losses. Interest on
loans that are classified as nonaccrual is recognized when received. Past due
loans are loans whose principal or interest is past due 90 days or more. In some
cases, where borrowers are experiencing financial difficulties, loans may be
restructured to provide terms significantly different from the original
contractual terms.
December 31,
----------------------------------------------------------------------
2001 2000 1999 1998 1997
------------- ----------- ---------- ------------ ----------
(Dollars in Thousands)
----------------------------------------------------------------------
Loans accounted for on a nonaccrual basis $ 11,958 $ 4,863 $ 5,551 $ 8,767 $ 10,101
Installment loans and term loans contractually 691 81 48 94 59
past due ninety days or more as to interest
or principal payments and still accruing
Loans, the terms of which have been renegotiated - - - - -
to provide a reduction or deferral of interest
or principal because of deterioration in the
financial position of the borrower
Loans now current about which there are serious - - - - -
doubts as to the ability of the borrower to
comply with present loan repayment terms
In the opinion of management, any loans classified by regulatory
authorities as doubtful, substandard or special mention that have not been
disclosed above do not (i) represent or result from trends or uncertainties
which management reasonably expects will materially impact future operating
results, liquidity or capital resources, or (ii) represent material credits
about which management is aware of any information which causes management to
have serious doubts as to the ability of such borrowers to comply with the loan
repayment terms. Any loans classified by regulatory authorities as loss have
been charged off.
31
SUMMARY OF LOAN LOSS EXPERIENCE
The provision for possible loan losses is created by direct charges to
operations. Losses on loans are charged against the allowance in the period in
which such loans, in management's opinion, become uncollectible. Recoveries
during the period are credited to this allowance. The factors that influence
management's judgment in determining the amount charged to operating expense are
past loan experience, composition of the loan portfolio, evaluation of possible
future losses, current economic conditions and other relevant factors. Our
allowance for loan losses was approximately $14,944,000 at December 31, 2001,
representing 1.86% of year end total loans outstanding, compared with $9,832,000
at December 31, 2000, which represented 1.67% of year end total loans
outstanding. The allowance for loan losses is reviewed quarterly based on
management's evaluation of current risk characteristics of the loan portfolio,
as well as the impact of prevailing and expected economic business conditions.
Management considers the allowance for loan losses adequate to cover possible
loan losses on the loans outstanding.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. Management believes the
allowance can be allocated only on an approximate basis. The allocation of the
allowance to each category is not necessarily indicative of future losses and
does not restrict the use of the allowance to absorb losses in any other
category.
At December 31,
------------------------------------------------------------------------------------------
2001 2000 1999 1998
-------------------- --------------------- -------------------- -----------------------
Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in
Category Category Category Category
to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans
-------- ---------- --------- ---------- -------- ---------- --------- -----------
(Dollars in Thousands)
-----------------------------------------------------------------------------------------
Commercial, financial,
industrial and
agricultural $ 6,009 24 % $ 2,981 25 % $ 2,904 22 % $ 3,047 22 %
Real estate 2,825 64 2,925 61 3,213 64 3,404 64
Consumer 3,420 12 2,156 14 1,997 14 1,906 14
Unallocated 2,690 - 1,770 - 1,781 - 1,835 -
-------- ---------- --------- ---------- -------- ---------- --------- -----------
$14,944 100 % $ 9,832 100 % $ 9,895 100 % $ 10,192 100 %
======== ========== ========= ========== ======== ========== ========= ===========
-------------------------------------------------
1997
-----------------------
Percent of
Loans in
Category
to Total
Amount Loans
---------- -----------
-------------------------------------------------
Commercial, financial,
industrial and
agricultural $ 1,792 23 %
Real estate 3,274 62
Consumer 1,112 15
Unallocated 1,449 -
---------- ----------
$ 7,627 100 %
========== ==========
32
December 31,
----------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------ ------------ ------------ ------------ ------------
(Dollars in Thousands)
----------------------------------------------------------------------------
Average amount of loans outstanding $ 698,292 $ 570,526 $ 505,941 $ 495,421 $ 475,047
============ ============= ============= ============= ============
Balance of reserve for possible loan
losses at beginning of period $ 9,832 $ 9,895 $ 10,192 $ 7,627 $ 7,273
------------ ------------- ------------- ------------- ------------
Charge-offs:
Commercial, financial and
agricultural (3,534) (1,077) (1,383) (1,456) (759)
Real estate (626) (249) (933) (1,252) (1,981)
Consumer (1,328) (1,268) (1,417) (1,322) (383)
Recoveries:
Commercial, financial and
agricultural 203 302 434 276 168
Real estate 546 146 263 365 512
Consumer 361 371 585 449 66
------------ ------------- ------------- ------------- ------------
Net charge-offs (4,378) (1,775) (2,451) (2,940) (2,377)
------------ ------------- ------------- ------------- ------------
Additions to reserve charged to
operating expenses 4,566 1,712 2,154 5,505 2,731
------------ ------------- ------------- ------------- ------------
Allowance for loan losses of
acquired subsidiary 4,924 - - - -
------------ ------------- ------------- ------------- ------------
Balance of reserve for possible
loan losses at end of period $ 14,944 $ 9,832 $ 9,895 $ 10,192 $ 7,627
============ ============= ============= ============= ============
Ratio of net loan charge-offs
to average loans .63% .31% .48% .59% .50%
============ ============= ============= ============= ============
33
DEPOSITS
Average amount of deposits and average rate paid thereon, classified as
to noninterest-bearing demand deposits, interest-bearing demand and savings
deposits and time deposits, for the periods indicated are presented below.
Year Ended December 31,
------------------------------------------------------------
2001 2000
----------------------------- -----------------------------
Amount Rate Amount Rate
--------------- ------------ --------------- ------------
(Dollars in Thousands)
------------------------------------------------------------
Noninterest-bearing demand deposits $ 97,981 - % $ 88,390 - %
Interest-bearing demand and savings deposits 230,476 2.33 194,895 2.61
Time deposits 452,407 5.54 370,707 5.84
--------------- ---------------
Total deposits $ 780,864 $ 653,992
=============== ===============
We have a large, stable base of time deposits with little or no
dependence on volatile deposits of $100,000 or more. The time deposits are
principally certificates of deposit and individual retirement accounts obtained
for individual customers.
The amounts of time certificates of deposit issued in amounts of
$100,000 or more as of December 31, 2001, are shown below by category, which is
based on time remaining until maturity of (1) three months or less, (2) over
three through twelve months and (3) over twelve months.
(Dollars in
Thousands)
---------------
Three months or less $ 50,944
Over three through twelve months 89,417
Over twelve months 16,201
---------------
Total $ 156,562
===============
34
RETURN ON ASSETS AND SHAREHOLDERS' EQUITY
The following rate of return information for the periods indicated is
presented below.
Year Ended December 31,
-------------------------------------------------------
2001 2000 1999
---------------- ---------------- ----------------
Return on assets (1) 1.00 % 1.27 % 1.23 %
Return on equity (2) 10.30 13.19 11.93
Dividends payout ratio (3) 45.71 38.66 33.98
Equity to assets ratio (4) 9.74 9.59 10.29
(1) Net income divided by average total assets.
(2) Net income divided by average equity.
(3) Dividends declared per share divided by net income per share.
(4) Average equity divided by average total assets.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity management involves the matching of the cash flow
requirements of customers, who may be either depositors desiring to withdraw
funds or borrowers needing assurance that sufficient funds will be available to
meet their credit needs, and the ability of ABC and our Banks to meet those
needs. ABC and our Banks seek to meet liquidity requirements primarily through
management of short-term investments (principally interest-bearing deposits in
banks) and monthly amortizing loans. Another source of liquidity is the
repayment of maturing single payment loans. In addition, our Banks maintain
relationships with correspondent banks which could provide funds to them on
short notice, if needed.
The liquidity and capital resources of ABC and our Banks are monitored
on a periodic basis by state and federal regulatory authorities. At December 31,
2001, the Banks' short-term investments were adequate to cover any reasonable
anticipated immediate need for funds. During 2001, we increased our capital by
retaining net earnings of $5,173,000 after payment of dividends. We also
increased our capital resources by adding $17,356,000 from the issuance of our
common stock in connection with business acquisitions consummated in 2001. After
recording an increase in capital of $349,000 for unrealized gains on securities
available for sale, net of taxes, an increase of $602,000 for restricted stock
transactions, and an increase of $12,000 for the exercise of stock options,
total capital increased $23,492,000 during 2001. At December 31, 2001, total
capital of ABC amounted to $104,148,000. We are aware of no events or trends
likely to result in a material change in our liquidity.
At December 31, 2001, we had binding commitments for capital
expenditures of approximately $750,000.
In accordance with risk capital guidelines issued by the Federal
Reserve Board, we are required to maintain a minimum standard of total capital
to risk-weighted assets of 8%. Additionally, all member banks must maintain
"core" or "Tier 1" capital of at least 4% of total assets ("leverage ratio").
Member banks operating at or near the 4% capital level are expected to have
well-diversified risks, including no undue interest rate risk exposure,
excellent control systems, good earnings, high asset quality, and well managed
on- and off-balance sheet activities; and, in general, be considered strong
banking organizations with a composite 1 rating under the CAMEL rating system of
banks. For all but the most highly rated banks meeting the above conditions, the
minimum leverage ratio is to be 4% plus an additional 100 to 200 basis points.
The following table summarizes the regulatory capital levels
of our Company at December 31, 2001.
Actual Required Excess
------------------------- ------------------------- -------------------------
Amount Percent Amount Percent Amount Percent
----------- ------------ ----------- ------------ -------------------------
(Dollars in Thousands)
---------------------------------------------------------------------------------
Leverage capital $ 103,506 9.26 % $ 43,874 4.00 % $ 59,632 5.26 %
Risk-based capital:
Core capital 103,506 12.70 32,633 4.00 70,943 8.70
Total capital 122,372 15.02 65,266 8.00 57,466 7.02
Each Bank also met its individual regulatory capital requirements at
December 31, 2001.
35
COMMITMENTS AND LINES OF CREDIT
In the ordinary course of business, the Banks have granted
commitments to extend credit to approved customers. Generally, these
commitments to extend credit have been granted on a temporary basis
for seasonal or inventory requirements and have been approved by the
Banks' Board of Directors. The Banks have also granted commitments to
approved customers for standby letters of credit. These commitments
are recorded in the financial statements when funds are disbursed or
the financial instruments become payable. The Banks use the same
credit policies for these off balance sheet commitments as they do
for financial instruments that are recorded in the consolidated
financial statements. Commitments generally have fixed expiration
dates or other termination clauses and may require payment of a fee.
Since many of the commitment amounts expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements.
Following is a summary of the commitments outstanding at
December 31, 2001 and 2000.
2001 2000
--------------- ---------------
(Dollars in Thousands)
---------------------------------
Commitments to extend credit $ 114,631 $ 75,007
Credit card commitments 13,775 10,471
Standby letters of credit 3,405 5,179
--------------- ---------------
$ 131,811 $ 90,657
=============== ===============
IMPACT OF INFLATION
The consolidated financial statements and related
consolidated financial data presented herein have been prepared in
accordance with generally accepted accounting principles and
practices within the banking industry which require the measurement
of financial position and operating results in terms of historical
dollars without considering the changes in the relative purchasing
power of money over time due to inflation. Unlike most industrial
companies, virtually all the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates have
a more significant impact on a financial institution's performance
than the effects of general levels of inflation.
36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the
Company and its subsidiaries are included on pages F-1 through F-35
of this Annual Report on Form 10-K:
Consolidated Balance Sheets - December 31, 2001 and 2000
Consolidated Statements of Income - Years ended December
31, 2001, 2000 and 1999
Consolidated Statements of Comprehensive Income - Years
ended December 31, 2001, 2000 and 1999
Consolidated Statements of Stockholders' Equity - Years
ended December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows - Years ended
December 31, 2001, 2000 and 1999
Notes to Consolidated Financial Statements.
ITEM 9. DISAGREEMENT ON ACCOUNTING AND FINANCIAL DISCLOSURE
During 2001 and 2000, the Company did not change its
accountants and there was no disagreement on any matter of accounting
principles or practices for financial statement disclosure that would
have required the filing of a current report on Form 8-K.
37
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by this Item is incorporated by
reference to the Company's definitive Proxy Statement to be filed
with the Securities and Exchange Commission pursuant to Regulation
14A within 120 days after the end of the fiscal year covered by this
Annual Report ("ABC's Proxy Statement").
Information concerning the Company's executive officers
is included in Item 4.5 of Part I of this Annual Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by
reference to ABC's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by
reference to ABC's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by
reference to ABC's Proxy Statement.
38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Item 13(a) 1., 2. and 3.
(a) The following documents are filed as part of this report:
1. Financial statements:
(a) ABC Bancorp and Subsidiaries:
(i) Consolidated Balance Sheets - December 31,
2001 and 2000
(ii) Consolidated Statements of Income - Years
ended December 31, 2001, 2000 and 1999
(iii) Consolidated Statements of
Comprehensive Income - Years ended
December 31, 2001, 2000 and 1999
(iv) Consolidated Statements of
Stockholders' Equity - Years ended
December 31, 2001, 2000 and 1999
(v) Consolidated Statements of Cash Flows -
Years ended December 31, 2001, 2000 and
1999
(vi) Notes to Consolidated Financial
Statements
(b) ABC Bancorp (Parent Company Only):
Parent Company only financial information has been
included in Note 19 of Notes to Consolidated
financial statements.
2. Financial statement schedules:
All schedules are omitted as the required information is
inapplicable or the information is presented in the
financial statements or related notes.
3. Exhibits required by Item 601 of Regulation S-K:
(b) ABC has filed a Current Report on Form 8-K, dated October 29, 2001,
concerning the execution and delivery of a Purchase and Assumption
Agreement between ABC's wholly-owned subsidiary, Merchants &
Farmers Bank, and Security Bank and Trust Company of Albany. The
Current Report on Form 8-K was filed under Item 5 of Form 8-K, and
no financial information concerning ABC was required to be filed
therewith.
ABC has also filed a Current Report on Form 8-K, dated November 5,
2001, concerning the execution and delivery of an Underwriting
Agreement among ABC, ABC Bancorp Capital Trust I, Sterne, Agee &
Leach, Inc. and Morgan Keegan & Company, Inc. The Current Report on
Form 8-K was filed under Item 5 of Form 8-K, and no financial
information concerning ABC was required to be filed therewith.
39
Exhibit No. Description
----------- -------------------------------------------------------------------------------------
3.1 Articles of Incorporation of ABC, as amended (incorporated by reference Exhibit
2.1 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630) filed
August 14, 1987).
3.2 Amendment to Amended Articles of Incorporation dated May 26, 1995 (incorporated
by reference to Exhibit 3.1.1 to ABC's Form 10-K filed March 28, 1996).
3.3 Amendment to Amended Articles of Incorporation (filed as Exhibit 4.3 to ABC's
Registration on Form S-4 (Registration No. 333-08301), filed with the Commission on
July 17, 1996 and incorporated herein by reference).
3.4 Bylaws of ABC, as amended (incorporated by reference to Exhibit 2.2 to ABC's
Regulation A Offering Statement on Form 1-A (File No. 24A-2630) filed August 14,
1987.
3.5 Form of Articles of Amendment to the Articles of Incorporation (incorporated by
reference to Exhibit 3.5 to ABC's Annual Report on Form 10-K (File No. 001-13901),
filed with the Commission on March 25, 1998).
3.6 Form of Amendment to Bylaws (incorporated by reference to Exhibit 3.6 to ABC's
Annual Report on Form 10-K (File No. 001-13901), filed with the Commission on
March 25, 1998).
3.7 Form of Articles of Amendment to the Articles of Incorporation (incorporated by
reference to Exhibit 3.7 to ABC's Annual Report on Form 10-K (File No. 001-13901),
filed with the Commission on March 26, 1999).
3.8 Form of Amendment to Bylaws (incorporated by reference to Exhibit 3.8 to ABC's
Annual Report on Form 10-K (File No. 001-13901), filed with the Commission on
March 26, 1999).
4.1 Form of Indenture for Subordinated Debentures (incorporated by reference to Exhibit
4.1 to ABC's Registration Statement on Form S-3/A (File No. 333-69140), filed with
the Commission on November 2, 2001).
4.2 Form of Subordinated Debenture (incorporated by reference to Exhibit A to Exhibit
4.1 to ABC's Registration Statement on Form S-3/A (File No. 333-69140), filed with
the Commission on November 2, 2001).
4.3 Certificate of Trust of ABC Bancorp Capital Trust I (incorporated by reference to
Exhibit 4.3 to ABC's Registration Statement on Form S-3 (File No. 333-69140), filed
with the Commission on September 7, 2001).
4.4 Trust Agreement of ABC Bancorp Capital Trust I (incorporated by reference to
Exhibit 4.4 to ABC's Registration Statement on Form S-3 (File No. 333-69140), filed
with the Commission on September 7, 2001).
4.5 Form of Amended and Restated Trust Agreement of ABC Bancorp Capital Trust I
(incorporated by reference to Exhibit 4.5 to ABC's Registration Statement on Form S-
3/A (File No. 333-69140), filed with the Commission on November 2, 2001).
4.6 Form of ABC Bancorp Capital Trust I Preferred Securities Certificate (incorporated by
reference to Exhibit D to Exhibit 4.5 to ABC's Registration Statement on Form S-3/A
(File No. 333-69140), filed with the Commission on November 2, 2001).
40
Exhibit No. Description
----------- -----------------------------------------------------------------------------
4.7 Form of Preferred Securities Guarantee Agreement (incorporated by reference to
Exhibit 4.7 to ABC's Registration Statement on Form S-3/A (File No. 333-69140),
filed with the Commission on November 2, 2001).
4.8 Form of Agreement as to Expenses and Liabilities of ABC Bancorp Capital Trust I
(incorporated by reference to Exhibit C to Exhibit 4.5 to ABC's Registration Statement
on Form S-3/A (File No. 333-69140), filed with the Commission on November 2,
2001).
10.1 1985 Incentive Stock Option Plan (filed as Exhibit 5.1 to ABC's Regulation A
Offering Statement on Form 1-A (File No. 24A-2630), filed with the Commission on
August 14, 1987 and incorporated herein by reference).
10.2 Incentive Stock Option Agreement with Kenneth J. Hunnicutt dated October 17, 1985
(filed as Exhibit 5.2 to ABC's Regulation A Offering Statement on Form 1-A (File No.
24A-2630), filed with the Commission on August 14, 1987 and incorporated herein by
reference).
10.3 Deferred Compensation Agreement for Kenneth J. Hunnicutt dated December 16,
1986 (filed as Exhibit 5.3 to ABC's Regulation A Offering Statement on Form 1-A
(File No. 24A-2630), filed with the Commission on August 14, 1987 and incorporated
herein by reference).
10.4 Executive Salary Continuation Agreement dated February 14, 1984 (filed as Exhibit
10.6 to ABC's Annual Report on Form 10-KSB (File Number 2-71257), filed with the
Commission on March 27, 1989 and incorporated herein by reference).
10.5 1992 Incentive Stock Option Plan and Option Agreement for K. J. Hunnicutt (filed as
Exhibit 10.7 to ABC's Annual Report on Form 10-KSB (File Number 0-16181), filed
with the Commission on March 30, 1993 and incorporated herein by reference).
10.6 Executive Employment Agreement with Kenneth J. Hunnicutt dated September 20,
1994 (filed as Exhibit 10.8 to ABC's Annual Report on Form 10-KSB (File Number 0-
016181), filed with the Commission on March 30, 1995 and incorporated herein by
reference).
10.7 Form of Omnibus Stock Ownership and Long-Term Incentive Plan (incorporated by
reference to Exhibit 10.17 to ABC's Annual Report on Form 10-K (File No. 001-
13901), filed with the Commission on March 25, 1998).
10.8 Form of Rights Agreement between ABC Bancorp and SunTrust Bank dated as of
February 17, 1998 (incorporated by reference to Exhibit 10.18 to ABC's Annual
Report on Form 10-K (File No. 001-13901), filed with the Commission on March 25,
1998).
10.9 ABC Bancorp 2000 Officer/Director Stock Bonus Plan (incorporated by reference to
Exhibit 10.19 to ABC's Annual Report on Form 10-K (File No. 001-13901), filed with
the Commission on March 29, 2000)
10.10 Executive Employment Agreement with Mark D. Thomas dated as of July 12, 1999
(incorporated by reference to Exhibit 10.19 to ABC's Annual Report on Form 10-K
(File No. 001-13901) filed with the Commission on March 29, 2001).
41
Exhibit No. Description
----------- -------------------------------------------------------------------------
10.11 Form of Severance Protection Agreement between ABC and certain of ABC's other
executive officers (incorporated by reference to Exhibit 10.21 to ABC's Annual Report
on Form 10-K (File No. 001-13901), filed with the Commission on March 29, 2001).
10.12 Executive Employment Agreement with W. Edwin Lane, Jr. dated as of August 21,
2001 (incorporated by reference to Exhibit 10.21 to ABC's Quarterly Report on Form
10-Q (File No. 001-13901), filed with the Commission on October 19, 2001).
10.13 Agreement and Plan of Merger by and among ABC, Tri-County Bank and Tri-County
Merger Sub, Inc. dated as of November 28, 2000, as amended by Amendment No. 1
thereto dated as of January 26, 2001, and by Amendment No. 2 thereto dated as of
February 20, 2001 (incorporated by reference to Exhibit 2.1 to ABC's Annual Report
on Form 10-K (File No. 001-13901), filed with the Commission on March 29, 2001).
10.14 Agreement and Plan of Merger by and between ABC and Golden Isles Financial
Holdings,Inc. dated as of February 20, 2001 (incorporated by reference to Exhibit 2.1
to ABC's Current Report on Form 8-K filed with the Commission on February 23,
2001 and incorporated herein by reference).
21.1 Schedule of subsidiaries of ABC Bancorp.
24.1 Power of Attorney relating to this Form 10-K is set forth on the signature pages of this
Form 10-K.
42
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ABC BANCORP
Date: 3/19/02
-------------------------- By: /s/ Kenneth J. Hunnicutt
-----------------------------------------------------------------------------------
Kenneth J. Hunnicutt, Chief Executive Officer, Director and Chairman of the Board
Date: 3/19/02
-------------------------- By: /s/ Mark D. Thomas
-----------------------------------------------------------------------------------
Mark D. Thomas, President, Chief Operating Officer and Director
Date: 3/19/02
-------------------------- By: /s/ W. Edwin Lane, Jr.
-----------------------------------------------------------------------------------
W. Edwin Lane, Jr., Executive Vice President and Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Kenneth J. Hunnicutt
as his attorney-in-fact, acting with full power of substitution for
him in his name, place and stead, in any and all capacities, to sign
any amendments to this Form 10-K and to file the same, with exhibits
thereto, and any other documents in connection therewith, with the
Securities and Exchange Commission and hereby ratifies and confirms
all that said attorney-in-fact, or his substitute or substitutes, may
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Exchange Act, this
Form 10-K has been signed by the following persons in the capacities
and on the dates indicated.
Date: 3/19/02 /s/ Kenneth J. Hunnicutt
-------------------------- -----------------------------------------------------------------------------------
Kenneth J. Hunnicutt, Chief Executive Officer, Director and Chairman of the Board
Date: 3/19/02 /s/ Mark D. Thomas
-------------------------- -----------------------------------------------------------------------------------
Mark D. Thomas, President, Chief Operating Officer and Director
Date: 3/19/02 /s/ W. Edwin Lane, Jr.
-------------------------- -----------------------------------------------------------------------------------
W. Edwin Lane, Jr., Executive Vice President and Chief Financial Officer
Date:
-------------------------- -----------------------------------------------------------------------------------
Johnny W. Floyd, Director
Date: 3/19/02 /s/ J. Raymond Fulp
-------------------------- -----------------------------------------------------------------------------------
J. Raymond Fulp, Director
Date: 3/19/02 /s/ Daniel B. Jeter
-------------------------- -----------------------------------------------------------------------------------
Daniel B. Jeter, Director
43
Date:
-------------------------- -----------------------------------------------------------------------------------
Robert P. Lynch, Director
Date: 3/19/02 /s/ Eugene M. Vereen, Jr.
-------------------------- -----------------------------------------------------------------------------------
Eugene M. Vereen, Jr., Director
Date: 3/19/02 /s/ Doyle Weltzbarker
-------------------------- -----------------------------------------------------------------------------------
Doyle Weltzbarker, Director
Date: 3/19/02 /s/ J. Thomas Whelchel
-------------------------- -----------------------------------------------------------------------------------
J. Thomas Whelchel, Director
Date: 3/19/02 /s/ Henry Wortman
-------------------------- -----------------------------------------------------------------------------------
Henry Wortman, Director
44
Exhibit No. Description
----------- --------------------------------------------------------------------
3.1 Articles of Incorporation of ABC, as amended (incorporated by reference
to Exhibit 2.1 to ABC's Regulation A Offering Statement on Form 1-A
(File No. 24A-2630) filed August 14, 1987).
3.2 Amendment to Amended Articles of Incorporation dated May 26, 1995
(incorporated by reference to Exhibit 3.1.1 to ABC's Form 10-K filed
March 28, 1996).
3.3 Amendment to Amended Articles of Incorporation (filed as
Exhibit 4.3 to ABC's Registration on Form S-4 (Registration No.
333-08301), filed with the Commission on July 17, 1996 and
incorporated herein by reference).
3.4 Bylaws of ABC, as amended (incorporated by reference to Exhibit 2.2 to
ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630)
filed August 14, 1987.
3.5 Form of Articles of Amendment to the Articles of Incorporation
(incorporated by reference to Exhibit 3.5 to ABC's Annual Report on
Form 10-K (File No. 001-13901), filed with the Commission on March
25, 1998).
3.6 Form of Amendment to Bylaws (incorporated by reference to Exhibit 3.6 to
ABC's Annual Report on Form 10-K (File No. 001-13901), filed with the
Commission on March 25, 1998).
3.7 Form of Articles of Amendment to the Articles of Incorporation
(incorporated by reference to Exhibit 3.7 to ABC's Annual Report on
Form 10-K (File No. 001-13901), filed with the Commission on March
26, 1999).
3.8 Form of Amendment to Bylaws (incorporated by reference to Exhibit 3.8 to
ABC's Annual Report on Form 10-K (File No. 001-13901), filed with the
Commission on March 26, 1999).
4.1 Form of Indenture for Subordinated Debentures (incorporated by reference
to Exhibit 4.1 to ABC's Registration Statement on Form S-3/A (File No.
333-69140), filed with the Commission on November 2, 2001).
4.2 Form of Subordinated Debenture (incorporated by reference to Exhibit A
to Exhibit 4.1 to ABC's Registration Statement on Form S-3/A (File No.
333-69140), filed with the Commission on November 2, 2001).
4.3 Certificate of Trust of ABC Bancorp Capital Trust I (incorporated by
reference to Exhibit 4.3 to ABC's Registration Statement on Form S-3
(File No. 333-69140), filed with the Commission on September 7, 2001).
4.4 Trust Agreement of ABC Bancorp Capital Trust I (incorporated by
reference to Exhibit 4.4 to ABC's Registration Statement on Form S-3
(File No. 333-69140), filed with the Commission on September 7, 2001).
4.5 Form of Amended and Restated Trust Agreement of ABC Bancorp
Capital Trust I (incorporated by reference to Exhibit 4.5 to ABC's
Registration Statement on Form S-3/A (File No. 333-69140), filed with
the Commission on November 2, 2001).
4.6 Form of ABC Bancorp Capital Trust I Preferred Securities Certificate
(incorporated by reference to Exhibit D to Exhibit 4.5 to ABC's
Registration Statement on Form S-3/A (File No. 333-69140), filed with
the Commission on November 2, 2001).
45
Exhibit No. Description
----------- --------------------------------------------------------------------
4.7 Form of Preferred Securities Guarantee Agreement (incorporated by
reference to Exhibit 4.7 to ABC's Registration Statement on Form S-3/A
(File No. 333-69140), filed with the Commission on November 2, 2001).
4.8 Form of Agreement as to Expenses and Liabilities of ABC Bancorp Capital
Trust I (incorporated by reference to Exhibit C to Exhibit 4.5 to ABC's
Registration Statement on Form S-3/A (File No. 333-69140), filed with
the Commission on November 2, 2001).
10.1 1985 Incentive Stock Option Plan (filed as Exhibit 5.1 to ABC's
Regulation A Offering Statement on Form 1-A (File No. 24A-2630), filed
with the Commission on August 14, 1987 and incorporated herein by
reference).
10.2 Incentive Stock Option Agreement with Kenneth J. Hunnicutt dated
October 17, 1985 (filed as Exhibit 5.2 to ABC's Regulation A Offering
Statement on Form 1-A (File No. 24A-2630), filed with the Commission
on August 14, 1987 and incorporated herein by reference).
10.3 Deferred Compensation Agreement for Kenneth J. Hunnicutt dated
December 16, 1986 (filed as Exhibit 5.3 to ABC's Regulation A
Offering Statement on Form 1-A (File No. 24A-2630), filed with the
Commission on August 14, 1987 and incorporated herein by reference).
10.4 Executive Salary Continuation Agreement dated February 14, 1984
(filed as Exhibit 10.6 to ABC's Annual Report on Form 10-KSB (File
Number 2-71257), filed with the Commission on March 27, 1989 and
incorporated herein by reference).
10.5 1992 Incentive Stock Option Plan and Option Agreement for K. J.
Hunnicutt (filed as Exhibit 10.7 to ABC's Annual Report on Form 10-KSB
(File Number 0-16181), filed with the Commission on March 30, 1993 and
incorporated herein by reference).
10.6 Executive Employment Agreement with Kenneth J. Hunnicutt dated
September 20, 1994 (filed as Exhibit 10.8 to ABC's Annual Report on
Form 10-KSB (File Number 0-016181), filed with the Commission on
March 30, 1995 and incorporated herein by reference).
10.7 Form of Omnibus Stock Ownership and Long-Term Incentive Plan
(incorporated by reference to Exhibit 10.17 to ABC's Annual Report on
Form 10-K (File No. 001-13901), filed with the Commission on March 25,
1998).
10.8 Form of Rights Agreement between ABC Bancorp and SunTrust Bank dated as
of February 17, 1998 (incorporated by reference to Exhibit 10.18 to
ABC's Annual Report on Form 10-K (File No. 001-13901), filed with the
Commission on March 25, 1998).
10.9 ABC Bancorp 2000 Officer/Director Stock Bonus Plan (incorporated by
reference to Exhibit 10.19 to ABC's Annual Report on Form 10-K (File No.
001-13901), filed with the Commission on March 29, 2000).
10.10 Executive Employment Agreement with Mark D. Thomas dated as of July 12,
1999 (incorporated by reference to Exhibit 10.19 to ABC's Annual Report
on Form 10-K (File No. 001-13901) filed with the Commission on March 29,
2001).
46
Exhibit No. Description
----------- --------------------------------------------------------------------
10.11 Form of Severance Protection Agreement between ABC and certain of ABC's
other executive officers (incorporated by reference to Exhibit 10.21 to
ABC's Annual Report on Form 10-K (File No. 001-13901), filed with the
Commission on March 29, 2001).
10.12 Executive Employment Agreement with W. Edwin Lane, Jr. dated as of
August 21, 2001 (incorporated by reference to Exhibit 10.21 to ABC's
Quarterly Report on Form 10-Q (File No. 001-13901), filed with the
Commission on October 19, 2001).
10.13 Agreement and Plan of Merger by and among ABC, Tri-County Bank and
Tri-County Merger Sub, Inc. dated as of November 28, 2000, as amended by
Amendment No. 1 thereto dated as of January 26, 2001, and by Amendment
No. 2 thereto dated as of February 20, 2001 (incorporated by reference
to Exhibit 2.1 to ABC's Annual Report on Form 10-K (File No. 001-13901),
filed with the Commission on March 29, 2001).
10.14 Agreement and Plan of Merger by and between ABC and Golden Isles
Financial Holdings, Inc. dated as of February 20, 2001 (incorporated by
reference to Exhibit 2.1 to ABC's Current Report on Form 8-K filed with
the Commission on February 23, 2001 and incorporated herein by
reference).
21.1 Schedule of subsidiaries of ABC Bancorp.
24.1 Power of Attorney relating to this Form 10-K is set forth on the
signature pages of this Form 10-K.
47
ABC BANCORP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Consolidated financial statements:
Independent Auditor's Report
Consolidated Balance Sheets - December 31, 2001 and 2000
Consolidated Statements of Income - Years ended December 31, 2001, 2000 and
1999
Consolidated Statements of Comprehensive Income - Years ended December
31, 2001, 2000 and 1999
Consolidated Statements of Stockholders' Equity - Years ended December
31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows - Years ended December 31, 2001,
2000 and 1999
Notes to Consolidated Financial Statements
All schedules are omitted as the required information is inapplicable or the
information is presented in the financial statements or related notes.
F-1
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
ABC Bancorp
Moultrie, Georgia
We have audited the accompanying consolidated balance sheets
of ABC Bancorp and Subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of income, comprehensive income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of ABC
Bancorp and Subsidiaries as of December 31, 2001 and 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America.
Albany, Georgia
February 7, 2002
/s/ Mauldin & Jenkins, LLC
F-2
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
(Dollars in Thousands)
Assets 2001 2000
------ ---------------- -------------
Cash and due from banks $ 51,303 $ 38,411
Interest-bearing deposits in banks 106,172 4,952
Securities available for sale, at fair value 156,835 162,105
Federal funds sold 44 -
Loans 805,076 587,381
Less allowance for loan losses 14,944 9,832
---------------- -------------
Loans, net 790,132 577,549
---------------- -------------
Premises and equipment, net 26,821 19,703
Intangible assets 6,074 355
Goodwill 19,240 6,477
Other assets 20,265 16,645
---------------- -------------
$ 1,176,886 $ 826,197
================ =============
Liabilities and Stockholders' Equity
------------------------------------
Deposits
Noninterest-bearing $ 125,522 $ 94,917
Interest-bearing 805,634 584,968
---------------- -------------
Total deposits 931,156 679,885
Federal funds purchased and securities sold under agreements to repurchase 3,792 2,653
Other borrowings 95,293 55,350
Other liabilities 7,997 7,653
Trust preferred securities 34,500 -
---------------- -------------
Total liabilities 1,072,738 745,541
---------------- -------------
Commitments and contingencies
Stockholders' equity
Common stock, par value $1; 30,000,000 shares authorized;
10,790,369 and 9,137,990 shares issued 10,790 9,138
Capital surplus 45,616 29,237
Retained earnings 53,584 48,411
Accumulated other comprehensive income 1,034 685
Unearned compensation (656) (595)
---------------- -------------
110,368 86,876
Less cost of 790,982 shares acquired for the treasury (6,220) (6,220)
---------------- -------------
Total stockholders' equity 104,148 80,656
---------------- -------------
$ 1,176,886 $ 826,197
================ =============
See Notes to Consolidated Financial Statements.
F-3
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(Dollars in Thousands)
2001 2000 1999
-------------- ------------- --------------
Interest income
Interest and fees on loans $ 65,157 $ 58,328 $ 50,603
Interest on taxable securities 9,072 8,750 7,488
Interest on nontaxable securities 869 959 1,086
Interest on deposits in other banks 943 939 814
Interest on federal funds sold 49 - -
-------------- ------------- --------------
76,090 68,976 59,991
-------------- ------------- --------------
Interest expense
Interest on deposits 30,480 26,753 22,424
Interest on other borrowings 4,424 4,052 1,976
-------------- ------------- --------------
34,904 30,805 24,400
-------------- ------------- --------------
Net interest income 41,186 38,171 35,591
Provision for loan losses 4,566 1,712 2,154
-------------- ------------- --------------
Net interest income after provision for
loan losses 36,620 36,459 33,437
-------------- ------------- --------------
Other income
Service charges on deposit accounts 7,721 6,393 5,696
Other service charges, commissions and fees 823 622 423
Mortgage origination fees 896 405 788
Gain (loss) on sale of securities 1,253 - (91)
Other 1,032 795 936
-------------- ------------- --------------
11,725 8,215 7,752
-------------- ------------- --------------
Other expenses
Salaries and employee benefits 18,166 16,420 14,886
Equipment expense 2,817 2,484 2,348
Occupancy expense 1,951 1,854 1,843
Amortization of intangible assets 1,185 804 804
Data processing fees 1,250 1,147 691
Other operating expenses 8,651 7,524 7,370
-------------- ------------- --------------
34,020 30,233 27,942
-------------- ------------- --------------
Income before income taxes 14,325 14,441 13,247
Applicable income taxes 4,692 4,343 4,291
-------------- ------------- --------------
Net income $ 9,633 $ 10,098 $ 8,956
============== ============= ==============
Basic earnings per common share $ 1.05 $ 1.19 $ 1.03
============== ============= ==============
Diluted earnings per common share $ 1.04 $ 1.19 $ 1.03
============== ============= ==============
See Notes to Consolidated Financial Statements.
F-4
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(Dollars in Thousands)
2001 2000 1999
---------- ------------ ------------
Net income $ 9,633 $ 10,098 $ 8,956
---------- ------------ ------------
Other comprehensive income (loss):
Net unrealized holding gains (losses) arising during period,
net of tax (benefits) of $606, $1,129 and $(973) 1,176 2,192 (1,889)
Reclassification adjustment for (gains) losses included in net
income, net of (tax) benefit of $(426 ), $-- and $31 (827) - 60
---------- ------------ ------------
Total other comprehensive income (loss) 349 2,192 (1,829)
---------- ------------ ------------
Comprehensive income $ 9,982 $ 12,290 $ 7,127
========== ============ ============
See Notes to Consolidated Financial Statements.
F-5
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(Dollars in Thousands)
Common Stock Capital
------------------------------
Shares Par Value Surplus
---------------- ------------- ------------
Balance, December 31, 1998 7,524,718 $ 7,525 $ 29,677
Net income - - -
Cash dividends declared, $.35 per share - - -
Six-for-five stock split 1,516,142 1,516 (1,516)
Issuance of restricted shares of common stock
under employee incentive plan 57,830 58 693
Amortization of unearned compensation,
net of forfeitures - - -
Repurchase of shares for treasury - - -
Other comprehensive loss - - -
---------------- ------------- ------------
Balance, December 31, 1999 9,098,690 9,099 28,854
Net income - - -
Cash dividends declared, $.46 per share - - -
Issuance of restricted shares of common stock
under employee incentive plan 39,300 39 383
Amortization of unearned compensation,
net of forfeitures - - -
Repurchase of shares for treasury - - -
Other comprehensive income - - -
---------------- ------------- ------------
Balance, December 31, 2000 9,137,990 9,138 29,237
Net income - - -
Cash dividends declared, $.48 per share - - -
Adjustments to record acquisition of purchased subsidiaries 1,588,347 1,588 15,768
Issuance of restricted shares of common stock
under employee incentive plan 62,800 63 600
Amortization of unearned compensation,
net of forfeitures - - -
Proceeds from exercise of stock options 1,232 1 11
Other comprehensive income - - -
---------------- ------------- ------------
Balance, December 31, 2001 10,790,369 $ 10,790 $ 45,616
================ ============= ============
See Notes to Consolidated Financial Statements.
F-6(a)
Accumulated
Other
Comprehensive Treasury Stock
Retained Income Unearned ---------------------------------
Earnings (Loss) Compensation Shares Cost Total
------------------ ------------------- ------------------ ------------- ---------------- --------------
$ 36,280 $ 322 $ - 305,153 $ (1,970) $ 71,834
8,956 - - - - 8,956
(3,048) - - - - (3,048)
- - - 62,470 - -
- - (751) - - -
- - 191 - - 191
- - - 7,200 (88) (88)
- (1,829) - - - (1,829)
------------------ ------------------- ------------------ ------------- ---------------- --------------
42,188 (1,507) (560) 374,823 (2,058) 76,016
10,098 - - - - 10,098
(3,875) - - - - (3,875)
- - (422) - - -
- - 387 - - 387
- - - 416,159 (4,162) (4,162)
- 2,192 - - - 2,192
------------------ ------------------- ------------------ ------------- ---------------- --------------
48,411 685 (595) 790,982 (6,220) 80,656
9,633 - - - - 9,633
(4,460) - - - - (4,460)
- - - - - 17,356
- - (663) - - -
- - 602 - - 602
- - - - - 12
- 349 - - - 349
------------------ ------------------- ------------------ ------------- ---------------- --------------
$ 53,584 $ 1,034 $ (656) 790,982 $ (6,220) $ 104,148
================== =================== ================== ============= ================ ==============
F-6(b)
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(Dollars in Thousands)
2001 2000 1999
------------ ------------ --------------
OPERATING ACTIVITIES
Net income $ 9,633 $ 10,098 $ 8,956
------------ ------------ --------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,438 2,189 1,988
Amortization of intangible assets 1,185 804 804
Amortization of unearned compensation 602 387 191
Net (gains) losses on sale of securities available for sale (1,253) - 91
Net (gains) losses on sale or disposal of premises and equipment (13) 7 36
Provision for loan losses 4,566 1,712 2,154
Provision for deferred taxes (726) (634) (87)
(Increase) decrease in interest receivable 2,233 (1,970) (75)
Increase (decrease) in interest payable (672) 578 57
Decrease in taxes receivable - - 526
Increase (decrease) in taxes payable 167 (1) 328
Net other operating activities (900) 371 (378)
------------ ------------ --------------
Total adjustments 7,627 3,443 5,635
------------ ------------ --------------
Net cash provided by operating activities 17,260 13,541 14,591
------------ ------------ --------------
INVESTING ACTIVITIES
(Increase) decrease in interest-bearing deposits in banks (97,267) 27,779 (18,314)
Purchases of securities available for sale (87,800) (26,961) (70,410)
Proceeds from maturities of securities available for sale 82,511 15,167 58,994
Proceeds from sale of securities available for sale 42,996 - 17,149
Proceeds from maturities of securities held to maturity - - 3,283
Decrease in federal funds sold 13,942 - -
Increase in loans, net (53,244) (58,931) (55,482)
Purchase of premises and equipment (1,896) (2,359) (2,631)
Proceeds from sale of premises and equipment 28 - -
Net cash received from acquisitions 11,609 - -
------------ ------------ --------------
Net cash used in investing activities (89,121) (45,305) (67,411)
------------ ------------ --------------
FINANCING ACTIVITIES
Increase in deposits 24,591 39,227 7,333
Increase (decrease) in federal funds purchased
and securities sold under agreements to repurchase 1,139 2,256 (486)
Proceeds from other borrowings 69,738 109,800 338,950
Repayment of other borrowings (39,515) (120,600) (284,650)
Dividends paid (4,262) (3,745) (2,898)
Proceeds from exercise of stock options 12 - -
Proceeds from issuance of trust preferred securities 34,500 - -
Payment for debt issue costs (1,450) - -
Purchase of treasury shares - (4,162) (88)
------------ ------------ --------------
Net cash provided by financing activities 84,753 22,776 58,161
------------ ------------ --------------
Net increase (decrease) in cash and due from banks 12,892 (8,988) 5,341
Cash and due from banks at beginning of year 38,411 47,399 42,058
------------ ------------ --------------
Cash and due from banks at end of year $ 51,303 $ 38,411 $ 47,399
============ ============ ==============
F- 7
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(Dollars in Thousands)
2001 2000 1999
-------------- ------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 35,576 $ 30,227 $ 24,343
Income taxes $ 5,251 $ 4,978 $ 3,524
NONCASH TRANSACTIONS
Transfer of securities held to maturity to
securities available for sale $ - $ - $ 15,330
Common stock issued in connection with
business acquisitions $ 17,590 $ - $ -
See Notes to Consolidated Financial Statements.
F- 8
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
ABC Bancorp, (the "Company") is a multi-bank holding company
whose business is presently conducted by its subsidiary banks
(the "Banks"). Through the Banks, the Company operates a full
service banking business and offers a broad range of retail and
commercial banking services to its customers located in a market
area which includes South and Southeast Georgia, North Florida
and Southeast Alabama. The Company and the Banks are subject to
the regulations of certain federal and state agencies and are
periodically examined by those regulatory agencies.
BASIS OF PRESENTATION
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of
the balance sheet date and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates. Material estimates that are
particularly susceptible to significant change in the near term
relate to the determination of the allowance for loan losses,
the valuation of foreclosed real estate and deferred taxes.
The Company's consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant
intercompany transactions and balances have been eliminated in
consolidation.
CASH, DUE FROM BANKS AND CASH FLOWS
For purposes of reporting cash flows, cash and due from banks
includes cash on hand, cash items in process of collection and
amounts due from banks. Cash flows from loans, federal funds
sold, deposits, interest-bearing deposits in banks and federal
funds purchased and securities sold under agreements to
repurchase are reported net.
The Company maintains amounts due from banks which, at times,
may exceed federally insured limits. The Company has not
experienced any losses in such accounts.
SECURITIES
Debt securities that management has the positive intent and
ability to hold to maturity are classified as held-to-maturity
and recorded at amortized cost. Securities not classified as
held-to-maturity, including equity securities with readily
determinable fair values, are classified as available-for-sale
and recorded at fair value with unrealized gains and losses
excluded from earnings and reported in other comprehensive
income. Equity securities, including restricted stock, without a
readily determinable fair value are classified as
available-for-sale and recorded at cost.
Interest and dividends, including amortization of premiums
and accretion of discounts, are included in interest income.
Gains and losses on the sale of securities are determined
using the specific identification method. Declines in the
fair value of any security below its cost that is deemed to
be other than temporary is reflected in earnings as realized
losses.
F- 9
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS
Loans are reported at their outstanding unpaid principal
balances less unearned income and the allowance for loan losses.
Interest income is accrued on the unpaid principal balance.
Loan origination fees and direct origination costs of loans are
recognized at the time the loan is placed on the books. Because
the loan origination fee approximates the cost of most loans and
the majority of loans have maturities of one year or less, the
effect on operations is immaterial.
The accrual of interest on loans is discontinued when, in
management's opinion, the borrower may be unable to meet
payments as they become due, unless the loan is well-secured.
All interest accrued but not collected for loans that are placed
on nonaccrual or charged off is reversed against interest
income. Interest income on nonaccrual loans is subsequently
recognized only to the extent cash payments are received until
the loans are returned to accrual status.
The allowance for loan losses is established through a
provision for loan losses charged to expense. Loan losses are
charged against the allowance when management believes the
collectibility of the principal is unlikely. Subsequent
recoveries are credited to the allowance.
The allowance is an amount that management believes will be
adequate to absorb estimated losses in the loan portfolio. The
allowance for loan losses is evaluated on a regular basis by
management and is based upon management's periodic review of
the collectibility of the loans in light of historical
experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower's ability to
repay, estimated value of any underlying collateral and
prevailing economic conditions. This evaluation is inherently
subjective as it requires estimates that are susceptible to
significant revision as more information becomes available. In
addition, regulatory agencies, as an integral part of their
examination process, periodically review the Banks' allowance
for loan losses, and may require the Bank to make additions to
the allowance based on their judgment about information
available to them at the time of their examinations.
A loan is considered impaired when it is probable the Banks will
be unable to collect all principal and interest payments due in
accordance with the contractual terms of the loan agreement.
Impaired loans are measured by either the present value of
expected future cash flows discounted at the loan's effective
interest rate, the loan's obtainable market price, or the fair
value of the collateral if the loan is collateral dependent.
The amount of impairment, if any, and any subsequent changes
are included in the allowance for loan losses.
PREMISES AND EQUIPMENT
Land is carried at cost. Premises and equipment are carried at
cost less accumulated depreciation computed principally on the
straight-line method over the estimated useful lives:
Years
-----
Buildings 39
Furniture and equipment 5-7
F- 10
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER REAL ESTATE OWNED
Other real estate owned (OREO) represents properties acquired
through foreclosure or other proceedings. OREO is held for sale
and is carried at the lower of the recorded amount of the loan or
fair value of the properties less estimated costs of disposal.
Any write-down to fair value at the time of transfer to OREO is
charged to the allowance for loan losses. Property is evaluated
regularly to ensure the recorded amount is supported by its
current fair value and valuation allowances to reduce the
carrying amount to fair value less estimated costs to dispose
are recorded as necessary. Subsequent decreases in fair value
and increases in fair value, up to the value established at
foreclosure, are recognized as charges or credits to
noninterest expense. OREO is included in other assets and is
reported net of allowance for losses in the Company's
consolidated balance sheets. The carrying amount of other real
estate owned at December 31, 2001 and 2000 was $1,249,500 and
$620,000, respectively.
TRANSFERS OF FINANCIAL ASSETS
Transfers of financial assets are accounted for as sales, when
control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered
when (1) the assets have been isolated from the Company, (2)
the transferee obtains the right (free of conditions that
constrain it from taking advantage of that right) to pledge or
exchange the transferred assets, and (3) the Company does not
maintain effective control over the transferred assets through
an agreement to repurchase them before their maturity.
INTANGIBLE ASSETS AND GOODWILL
Intangible assets, arising from excess of purchase price over
over the fair value of net assets acquired in purchase
transactions, represent identified intangible assets
and goodwill. Identified intangible assets are being amortized
on a straight-line basis over their useful lives. Goodwill
arising from purchase transactions consummated prior to June
30, 2001 has been amortized over a period ranging from 15 to 25
years. In June 2001, the Financial Accounting Standards Board
(the FASB) issued two new accounting standards that will
significantly affect the accounting for goodwill arising from
purchase transactions. See "Delayed Adoption of FASB Statement"
included below in this note.
INCOME TAXES
Income tax expense consists of current and deferred taxes.
Current income tax provisions approximate taxes to be paid or
refunded for the applicable year. Deferred tax assets and
liabilities are recognized on the temporary differences between
the bases of assets and liabilities as measured by tax laws and
their bases as reported in the financial statements. Deferred
tax expense or benefit is then recognized for the change in
deferred tax assets or liabilities between periods.
Recognition of deferred tax balance sheet amounts is based on
management's belief that it is more likely than not that the tax
benefit associated with certain temporary differences, tax
operating loss carryforwards, and tax credits will be realized.
A valuation allowance is recorded for those deferred tax items
for which it is more likely than not that realization will not
occur.
The Company and its subsidiaries file a consolidated income
tax return. Each subsidiary provides for income taxes based
on its contribution to income taxes (benefits) of the
consolidated group.
F- 11
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK COMPENSATION PLANS
Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation,
encourages all entities to adopt a fair value based method of
accounting for employee stock compensation plans, whereby
compensation cost is measured at the grant date based on the
value of the award and is recognized over the service period,
which is usually the vesting period. However, it also allows an
entity to continue to measure compensation cost for those plans
using the intrinsic value based method of accounting prescribed
by Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, whereby compensation cost is the
excess, if any, of the quoted market price of the stock at the
grant date (or other measurement date) over the amount an
employee must pay to acquire the stock. Stock options issued
under the Company's stock option plan have no intrinsic value
at the grant date, and under Opinion No. 25 no compensation
cost is recognized for them. The Company has elected to
continue with the accounting methodology in Opinion No. 25 and,
as a result, has provided pro forma disclosures of net income
and earnings per share and other disclosures, as if the fair
value based method of accounting had been applied.
TREASURY STOCK
The Company's repurchases of shares of its common stock are
recorded at cost as "Treasury stock" and result in a reduction
of "Stockholders' equity." When treasury shares are reissued,
the Company uses a first-in, first-out method and any
difference in repurchase cost and reissuance price is recorded
as an increase or reduction in "Capital surplus."
EARNINGS PER SHARE
Basic earnings per common share are computed by dividing net
income by the weighted-average number of shares of common stock
outstanding. Diluted earnings per common share are computed by
dividing net income by the effect of the issuance of potential
common shares that are dilutive by the sum of the
weighted-average number of shares of common stock outstanding
and potential common shares. Potential common shares consist of
only stock options for the years ended December 31, 2001, 2000
and 1999. The weighted-average number of shares outstanding for
the years ended at December 31, 2001, 2000, and 1999 was
9,214,276; 8,460,230; and 8,701,615, respectively. The
weighted-average number of shares outstanding and potential
shares for the years ended December 31, 2001, 2000 and 1999 was
9,250,040; 8,465,669; and 8,710,685, respectively.
Potential common shares not included due to the fact that they
would be anti-dilutive at December 31, 2001, 2000 and 1999 were
30,696; 159,052; and 33,325, respectively.
COMPREHENSIVE INCOME
Accounting principles generally require that recognized revenue,
expenses, gains and losses be included in net income. Although
certain changes in assets and liabilities, such as unrealized
gains and losses on available-for-sale securities, are reported
as a separate component of the equity section of the balance
sheet, such items, along with net income, are components of
comprehensive income.
F- 12
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DELAYED ADOPTION OF FASB STATEMENT
In June 2001, the FASB issued SFAS No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires that all business combinations
consummated after June 30, 2001 be accounted for by the
purchase method unless the combination was initiated on or
prior to that date and it meets the conditions to be accounted
for by the pooling-of-interests method in accordance with AFB
Opinion No. 16, "Business Combinations." SFAS No. 142 is
required to be applied in years beginning after December 15,
2001. Under SFAS No. 142, goodwill and intangible assets that
management concludes has indefinite useful lives will no longer
be amortized, but will be subject to impairment tests performed
at least annually. Also, upon initial application, the Company
is required to perform a transitional impairment test of all
previously recognized goodwill and to assign all recognized
assets and liabilities to reporting units. Other intangible
assets will continue to be amortized over their useful lives as
determined at the date of initial application.
The Company will adopt SFAS No. 142 beginning in the first
quarter of 2002. Application of the nonamortization provisions
of SFAS No. 142 is expected to result in an increase in net
income of $602,000 ($.07 per basic and diluted share) per year.
During 2002, the Company will perform the first of the required
impairment tests of goodwill and indefinite lived intangible
assets, but has not yet determined what effect those tests will
have on the earnings and financial position of the Company.
RECLASSIFICATION OF CERTAIN ITEMS
Certain items in the consolidated financial statements as of and
for the years ended December 31, 2000 and 1999 have been
reclassified, with no effect on total assets or net income, to
be consistent with the classifications adopted for the year
ended December 31, 2001.
NOTE 2. BUSINESS COMBINATIONS
On July 23, 2001, the Company acquired all of the outstanding
common shares of Golden Isles Financial Holdings (Golden Isles) in
exchange for cash and the Company's common stock, accounted for as
a purchase transaction. The results of Golden Isles' operations
have been included in the consolidated financial statements
since that date. Upon completion of the acquisition, Golden
Isles was liquidated and all its assets were transferred to
First Bank of Brunswick, its wholly-owned subsidiary, or to the
Company. First Bank of Brunswick is a full service commercial
bank with headquarters in Brunswick, Georgia and branches in
Jekyll Island, St. Simons and Brunswick. As a result of the
acquisition, the Company expanded its marketing area for
banking services to include a substantial market in Southeast
Georgia.
The aggregate purchase price was $24,901,000 including cash of
$10,478,000 and the Company's common stock valued at $14,423,000.
The value of the 1,240,843 common shares was determined based
on the closing price of the Company's common stock on February
20, 2001, the day immediately preceding the date of the
announcement of the merger.
F- 13
NOTE 2. BUSINESS COMBINATIONS (CONTINUED)
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of acquisition.
Current assets $ 146,741,000
Bank premises and equipment 5,842,000
Intangible assets 3,021,000
Goodwill 10,037,000
-----------------
Total assets acquired 165,641,000
-----------------
Current liabilities 131,020,000
Other borrowings 9,720,000
-----------------
Total liabilities assumed 140,740,000
-----------------
Net assets acquired $ 24,901,000
=================
Acquired intangible assets represent core deposit intangibles and
are being amortized over the estimated life of the base deposits
ranging from six to eight years. These intangible assets were
assigned to the First Bank of Brunswick operating unit. Goodwill of
$10,037,000 was assigned to the First Bank of Brunswick operating
unit. None of the goodwill is expected to be deductible for income
tax purposes.
On April 5, 2001, the Company acquired all of the outstanding
common shares of Tri-County Bank in exchange for cash and the
Company's common stock, accounted for as a purchase
transaction. The results of Tri-County Bank's operations have
been included in the consolidated financial statements since that
date. Tri-County Bank is a full service commercial bank with
headquarters in Trenton, Florida and a subsequently acquired branch
in Newberry, Florida. As a result of the acquisition, the Company
was able to expand its marketing area for banking services to
include North Florida.
The aggregate purchase price was $6,453,000 including cash of
$3,286,000 and the Company's common stock valued at $3,167,000. The
value of the 347,504 common shares was determined based on the
closing price of the Company's common stock on November 27, 2000,
the date the definitive merger agreement was signed.
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of acquisition.
Current assets $ 48,612,000
Bank premises and equipment 519,000
Intangible assets 953,000
Goodwill 769,000
----------------
Total assets acquired 50,853,000
----------------
Current liabilities 44,400,000
----------------
Total liabilities assumed 44,400,000
----------------
Net assets acquired $ 6,453,000
================
F- 14
NOTE 2. BUSINESS COMBINATIONS (CONTINUED)
Acquired intangible assets represent core deposit intangibles and
are being amortized over the estimated life of the base deposits of
ten years. These intangible assets and goodwill were assigned to the
Tri-County Bank operating unit. None of the goodwill is expected to
be deductible for income tax purposes.
Unaudited pro forma consolidated results of operations for the years
ended December 31, 2001 and 2000 as though First Bank of Brunswick
and Tri-County Bank had been acquired as of January 1, 2000 follow:
2001 2000
------------ ------------
Net interst income $ 44,107 $ 44,879
Net income 7,000 10,730
Basic earnings per share 0.70 1.07
Diluted earnings per share 0.70 1.07
The above amounts reflect adjustments for amortization of acquired
intangible assets, additional depreciation on revalued purchased
assets and imputed interest on borrowed funds.
During 2001, the Company acquired certain assets and assumed certain
liabilities of two bank branches located in Colquitt, Georgia and
Newberry, Florida. The acquisitions were settled with cash. The fair
value of assets acquired amounted to $51,438,000. Intangible assets
of $2,262,000, representing core deposit intangibles, were assigned
to the Merchants & Farmers Bank and Tri-County Bank operating units
and are being amortized over the estimated life of the base deposits
of ten years. Fair values of assets acquired and liabilities assumed
in the Colquitt acquisition have been estimated and are subject to
adjustment. Goodwill of $205,000 resulting from the Newberry
acquisition was assigned to the Tri-County Bank operating unit and
is being amortized over the estimated life of the base deposits.
Preliminary goodwill of $2,419,000 resulting from the Colquitt
acquisition was assigned to the Merchants & Farmers Bank operating
unit and is being amortized over the estimated life of the base
deposits. The goodwill related to these branch acquisitions is
expected to be deductible for income tax purposes.
Financial records were not available to present unaudited pro forma
consolidated results of operations for the years ended December 31,
2001 and 2000 as though the branches had been acquired as of January
1, 2000.
F- 15
NOTE 3. INVESTMENTS IN SECURITIES
The amortized cost and fair value of securities are summarized as
follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- ---------
(Dollars in Thousands)
----------------------------------------------------------
Securities Available for Sale
December 31, 2001:
U. S. Government and agency securities $ 49,509 $ 1,034 $ (70) $ 50,473
State and municipal securities 5,239 119 (19) 5,339
Corporate debt securities 7,171 2 (458) 6,715
Mortgage-backed securities 88,128 1,242 (259) 89,111
Equity securities 521 - (25) 496
Restricted equity securities 4,701 - - 4,701
------------- -------------- -------------- ----------
$ 155,269 $ 2,397 $ (831) $ 156,835
============= ============== ============== ==========
December 31, 2000:
U. S. Government and agency securities $ 60,467 $ 892 $ (173) $ 61,186
State and municipal securities 19,206 330 (68) 19,468
Corporate debt securities 6,101 114 (85) 6,130
Mortgage-backed securities 71,160 563 (502) 71,221
Equity securities 647 - (33) 614
Restricted equity securities 3,486 - - 3,486
------------- -------------- -------------- -----------
$ 161,067 $ 1,899 $ (861) $ 162,105
============= ============== ============== ===========
The amortized cost and fair value of debt securities as of December
31, 2001 by contractual maturity are shown below. Maturities may
differ from contractual maturities in mortgage-backed securities
because the mortgages underlying the securities may be called or
repaid without penalty. Therefore, these securities are not
included in the maturity categories in the following maturity
summary.
Amortized Fair
Cost Value
------------- ---------------
(Dollars in Thousands)
-------------------------------
Due in one year or less $ 3,961 $ 4,006
Due from one year to five years 36,081 36,252
Due from five to ten years 18,291 18,966
Due after ten years 3,586 3,303
Mortgage-backed securities 88,128 89,111
Equity securities 521 496
Restricted equity securities 4,701 4,701
------------- ---------------
$ 155,269 $ 156,835
============= ===============
F- 16
NOTE 3. INVESTMENTS IN SECURITIES (CONTINUED)
Securities with a carrying value of $86,541,872 and $82,568,979 at
December 31, 2001 and 2000, respectively, were pledged to secure
public deposits and for other purposes required or permitted by law.
Gains and losses on sales of securities available for sale consist
of the following:
December 31,
-------------------------------------
2001 2000 1999
---------- ----------- ----------
(Dollars in Thousands)
-------------------------------------
Gross gains on sales of securities $ 1,253 $ - $ 4
Gross losses on sales of securities - - (95)
---------- ----------- ----------
Net realized (losses) on sales of securities available for sale $ 1,253 $ - $ (91)
========== =========== ==========
NOTE 4. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
December 31,
-----------------------------------
2001 2000
--------------- ---------------
(Dollars in Thousands)
-----------------------------------
Commercial and financial $ 152,097 $ 109,647
Agricultural 39,878 34,840
Real estate - construction 24,650 14,046
Real estate - mortgage, farmland 63,533 57,253
Real estate - mortgage, commercial 225,470 160,456
Real estate - mortgage, residential 202,447 128,614
Consumer installment loans 91,557 76,076
Other 5,444 6,449
--------------- ---------------
805,076 587,381
Allowance for loan losses 14,944 9,832
--------------- ---------------
$ 790,132 $ 577,549
=============== ===============
The following is a summary of information pertaining to impaired
loans:
As of and For the Years Ended
December 31,
----------------------------------------------
2001 2000 1999
------------- ------------- --------------
Impaired loans without a valuation allowance $ - $ - $ -
Impaired loans with a valuation allowance 11,958 4,863 5,551
------------- ------------- --------------
Total impaired loans $ 11,958 $ 4,863 $ 5,551
============= ============= ==============
Valuation allowance related to impaired loans $ 1,984 $ 1,020 $ 953
============= ============= ==============
Average investment in impaired loans $ 8,249 $ 5,603 $ 6,447
============= ============= ==============
Interest income recognized on impaired loans $ 6 $ 51 $ 21
============= ============= ==============
Foregone interest income on impaired loans $ 666 $ 541 $ 593
============= ============= ==============
F- 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Changes in the allowance for loan losses for the years ended
December 31, 2001, 2000, and 1999 are as follows:
December 31,
----------------------------------------------
2001 2000 1999
------------- ------------- -------------
(Dollars in Thousands)
----------------------------------------------
Balance, beginning of year $ 9,832 $ 9,895 $ 10,192
Provision for loan losses 4,566 1,712 2,154
Loans charged off (5,488) (2,594) (3,733)
Recoveries of loans previously charged off 1,110 819 1,282
Acquired loan loss reserve 4,924 - -
-------------- ------------- -------------
Balance, end of year $ 14,944 $ 9,832 $ 9,895
============== ============= =============
In the ordinary course of business, the Company has granted loans
to certain directors, executive officers, and their affiliates. The
interest rates on these loans were substantially the same as rates
prevailing at the time of the transaction and repayment terms are
customary for the type of loan. Changes in related party loans for
the years ended December 31, 2001 and 2000 are as follows:
December 31,
--------------------------------
2001 2000
-------------- ---------------
(Dollars in Thousands)
--------------------------------
Balance, beginning of year $ 36,321 $ 27,457
Advances 9,890 28,802
Repayments (10,771) (23,082)
Transactions due to change(s) in related parties (952) 3,144
-------------- ---------------
Balance, end of year $ 34,488 $ 36,321
============== ===============
NOTE 5. PREMISES AND EQUIPMENT, NET
Premises and equipment are summarized as follows:
December 31,
-----------------------------
2001 2000
------------ ------------
(Dollars in Thousands)
-----------------------------
Land $ 6,200 $ 4,857
Buildings 22,260 16,604
Furniture and equipment 19,643 17,419
Construction in progress; estimated cost to complete, $435 1,697 471
------------ ------------
49,800 39,351
Accumulated depreciation (22,979) 19,648
------------ ------------
$ 26,821 $ 19,703
============ ============
F- 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. DEPOSITS
The aggregate amount of time deposits in denominations of
$100,000 or more at December 31, 2001 and 2000 was $156,562,000 and
$120,670,000, respectively. The scheduled maturities of time
deposits at December 31, 2001 are as follows:
(Dollars in
Thousands)
---------------
2002 $ 434,008
2003 37,479
2004 9,304
2005 5,403
2006 2,430
Later years 173
---------------
$ 488,797
===============
NOTE 7. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Securities sold under repurchase agreements, which are secured
borrowings, generally mature within one to four days from the
transaction date. Securities sold under repurchase agreements are
reflected at the amount of cash received in connection with the
transactions. The Company may be required to provide additional
collateral based on the fair value of the underlying securities.
The Company monitors the fair value of the underlying securities on
a daily basis. Securities sold under repurchase agreements at
December 31, 2001 and 2000 were $3,792,000 and $2,653,000,
respectively.
NOTE 8. EMPLOYEE BENEFIT PLANS
The Company has established two retirement plans for eligible
employees. The ABC Bancorp 401(k) Profit Sharing Plan allows a
participant to defer a portion of his compensation and provides
that the Company will match a portion of the deferred compensation.
The plan also provides for nonelective and discretionary
contributions to be made at the sole discretion of the Company. The
ABC Bancorp Money Purchase Pension Plan was established to
supplement a participant's income upon retirement. The Plan is fully
funded by the Company. The Plan provides for a fixed rate of
contribution, currently 5%, of the participant's eligible
compensation. The rate of contribution is established by the
Compensation Committee of ABC Bancorp's Board of Directors. The Plan
must be amended to change the fixed rate of 5% established by the
Compensation Committee in December 1997. All full-time and part-time
employees are eligible to participate in both plans provided they
have met the eligibility requirements. Generally, a participant must
have completed twelve months of employment with a minimum of 1,000
hours. Aggregate expense under the two plans charged to operations
during 2001, 2000 and 1999 amounted to $655,000, $949,000 and
$707,000, respectively.
F- 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. DEFERRED COMPENSATION PLANS
The Company and two subsidiary banks have entered into separate
deferred compensation arrangements with certain executive officers
and directors. The plans call for certain amounts payable at
retirement, death or disability. The estimated present value of the
deferred compensation is being accrued over the remaining expected
term of active employment. The Company and Banks have purchased
life insurance policies which they intend to use to finance this
liability. Cash surrender value of life insurance of $965,000 and
$892,000 at December 31, 2001 and 2000 is included in other
assets. Accrued deferred compensation of $618,000 and $576,000 at
December 31, 2001 and 2000 is included in other liabilities.
Aggregate compensation expense under the plans were $43,000,
$75,000 and $70,000 for 2001, 2000 and 1999, respectively, and is
included in other operating expenses.
NOTE 10. OTHER BORROWINGS
Other borrowings consist of the following:
December 31,
---------------------------
2001 2000
------------ ------------
(Dollars in Thousands)
---------------------------
Advances under revolving credit agreement with SunTrust Bank with $ 100 $ 2,000
interest at sixty-day LIBOR rate plus .9% (3.02% at December 31, 2001)
due on May 31, 2002; secured by subsidiary bank stock.
Advances from SunTrust Bank of $10,238,000 with 28 quarterly 9,507 -
principal payments of $366,000 at LIBOR plus 1.15% (3.06% at
December 31, 2001), maturing July 23, 2008.
Advances from Federal Home Loan Bank with interest at adjustable 27,000 53,100
rates (ranging from 2.02% to 5.68% at December 31, 2001) due
at various dates from March 21, 2002 to September 8, 2009.
Advances from Federal Home Loan Bank with interest at a fixed rate 498 250
(ranging from 6.46% to 7.23%) due in annual installments at
various dates from April 8, 2002 through November 1, 2006.
Advances from Federal Home Loan Bank with interest at a fixed rate 58,188 -
(ranging from 4.39% to 6.41%), convertible to a variable rate at
option of Federal Home Loan Bank, due at various dates
from March 17, 2003 to September 26, 2011.
------------ ------------
$ 95,293 $ 55,350
============ ============
The advances from Federal Home Loan Bank are collateralized by the
pledging of first mortgage loans and other specific loans.
Other borrowings at December 31, 2001 have maturities in future
years as follows:
(Dollars in
Thousands
)
--------------
2002 $ 2,758
2003 4,599
2004 2,534
2005 16,534
2006 1,484
Later years 67,384
--------------
$ 95,293
==============
F- 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. INCOME TAXES
The income tax expense in the consolidated statements of income
consists of the following:
Years Ended December 31,
----------------------------------------
2001 2000 1999
---------- ----------- ---------
(Dollars in Thousands)
----------------------------------------
Current $ 5,418 $ 4,977 $ 4,378
Deferred (726) (634) (87)
----------- ------------ ---------
$ 4,692 $ 4,343 $ 4,291
=========== ============ =========
The Company's income tax expense differs from the amounts computed
by applying the federal income tax statutory rates to income before
income taxes. A reconciliation of the differences is as follows:
Years Ended December 31,
----------------------------------------
2001 2000 1999
----------- ---------- ----------
(Dollars in Thousands)
----------------------------------------
Tax at federal income tax rate $ 4,871 $ 4,910 $ 4,504
Increase (decrease) resulting from:
Tax-exempt interest (476) (497) (392)
Amortization of intangible assets 274 162 167
Other 23 (232) 12
------------ ----------- -----------
Provision for income taxes $ 4,692 $ 4,343 $ 4,291
============ =========== ===========
Net deferred income tax assets of $3,877,000 and $3,486,000 at
December 31, 2001 and 2000, respectively, are included in other
assets. The components of deferred income taxes are as follows:
December 31,
----------------------------
2001 2000
------------ ------------
(Dollars in Thousands)
----------------------------
Deferred tax assets:
Loan loss reserves $ 4,945 $ 3,343
Deferred compensation 313 196
Unearned compensation related to restricted stock 401 196
Nonaccrual interest 429 216
Net operating loss tax carryforward 140 164
Other 75 -
------------ ------------
------------ ------------
6,303 4,115
------------ ------------
Deferred tax liabilities:
Deprecation and amortization 233 276
Unrealized gain on securities available for sale 533 353
Intangible assets 1,660 -
------------ ------------
2,426 629
------------ ------------
Net deferred tax assets $ 3,877 $ 3,486
============ ============
F- 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. TRUST PREFERRED SECURITIES
In 2001, the Company formed a wholly-owned grantor trust to issue
cumulative trust preferred securities to the public. The grantor
trust has invested the proceeds of the trust preferred securities
in junior subordinated debentures of the Company. The trust
preferred securities can be redeemed prior to maturity at the
option of the Company on or after September 30, 2006. The sole
assets of the guarantor trust are the Junior Subordinated
Deferrable Interest Debentures of the Company (the Debentures)
held by the grantor trust. The Debentures have the same interest
rate (9%) as the trust preferred securities. The Company has the
right to defer interest payments on the Debentures at any time or
from time to time for a period not exceeding 20 consecutive
quarters provided that no extension period may extend beyond the
stated maturity of the related Debentures. During any such
extension period, distributions on the trust preferred
certificates would also be deferred.
The trust preferred securities are subject to mandatory redemption
upon repayment of the related Debentures at their stated maturity
date or their earlier redemption at a redemption price equal to
their stated maturity date or their earlier redemption at a
redemption price equal to their liquidation amount plus accrued
distributions to the date fixed for the redemption upon concurrent
repayment of the related Debentures. The trust preferred
securities may be redeemed in whole or part at any time on or
after September 30, 2006.
Payment of periodic cash distributions and payment upon
liquidation or redemption with respect to the trust preferred
securities are guaranteed by the Company to the extent of funds
held by the grantor trust (the Preferred Securities Guarantee).
The Preferred Securities Guarantee, when taken together with the
Company's other obligations under the Debentures, constitute a
full and unconditional guarantee, on a subordinated basis, by the
Company of payments due on the trust preferred securities.
The Company is required by the Federal Reserve Board to maintain
certain levels of capital for bank regulatory purposes. The
Federal Reserve Board has determined that certain cumulative
preferred securities having the characteristics of trust preferred
securities qualify as minority interest, which is included in Tier
1 capital for bank and financial holding companies. In calculating
the amount of Tier l qualifying capital, the trust preferred
securities can only be included up to the amount constituting 25%
of total Tier 1 capital elements (including trust preferred
securities). Such Tier 1 capital treatment provides the Company
with a more cost-effective means of obtaining capital for bank
regulatory purposed than if the Company were to issue preferred
stock.
The trust preferred securities and the related Debentures were
issued on November 8, 2001. Both financial instruments bear an
identical annual rate of interest of 9%. Distributions on the
trust preferred securities are paid quarterly on March 31, June
30, September 30 and December 31 of each year, beginning December
31, 2001. Interest on the Debentures is paid on the corresponding
dates. The aggregate principal amount of trust preferred
certificates outstanding at December 31, 2001 was $34,500,000. The
aggregate principal amount of Debentures outstanding at December
31, 2001 was $35,567,000.
F- 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. STOCK OPTION PLANS
The Company has two fixed stock option plans under which it has
granted options to its Chief Executive Officer to purchase common
stock at the fair market price on the date of grant. All of the
options are intended to be incentive stock options qualifying
under Section 422 of the Internal Revenue Code for favorable tax
treatment. Under the 1992 Plan, options to purchase 10,001 shares
were granted. None of these options have been exercised, however,
all of the options were exercisable as of December 31, 2001.
Options under the 1992 Plan expire in 2002. Under the 1997 Plan,
options to purchase 67,500 shares were granted. Options under the
1997 Plan are fully vested and are exercisable over a period of
ten years subject to certain limitations as to aggregate fair
market value (determined as of the date of the grant) of all
options exercisable for the first time by the optionee during any
calendar year (the "$100,000 Per-Year Limitation"). Under the 1997
Plan, options to purchase 42,750 shares were exercisable as of
December 31, 2001.
At the annual meeting on April 15, 1997, the shareholders approved
the ABC Bancorp Omnibus Stock Ownership and Long-Term Incentive
Plan (the "Omnibus Plan"). Awards granted under the Omnibus Plan
may be in the form of Qualified or Nonqualified Stock Options,
Restricted Stock, Stock Appreciation Rights ("SARS"), Long-Term
Incentive Compensation Units consisting of a combination of cash
and Common Stock, or any combination thereof within the
limitations set forth in the Omnibus Plan. The Omnibus Plan
provides that the aggregate number of shares of the Company's
Common Stock which may be subject to award may not exceed 637,500
subject to adjustment in certain circumstances to prevent
dilution. As of December 31, 2001, the Company has issued a total
of 171,496 restricted shares under the Omnibus Plan as
compensation for certain key salaried employees. These shares
carry dividend and voting rights. Sale of these shares is
restricted prior to the date of vesting, which is three years from
the date of the grant. Shares issued under this plan were
recorded at their fair market value on the date of their grant
with a corresponding charge to equity. The unearned portion is
being amortized as compensation expense on a straight-line basis
over the related vesting period. Compensation expense related to
these grants was $602,000, $387,000 and $191 for 2001, 2000 and
1999, respectively. In addition to the granting of restricted
shares, options to purchase 208,442 shares of the Company's common
stock have been granted under the Omnibus Plan as of December 31,
2001.
A summary of the status of the three fixed plans at December 31,
2001, 2000 and 1999 and changes during the years ended on those
dates is as follows:
December 31,
-----------------------------------------------------------------------------
2001 2000 1999
------------------------ ------------------------ -------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
----------- ------------ ---------- ------------ ----------- ------------
Under option, beginning
of the year 239,553 $ 11.00 159,151 $ 11.40 115,966 $ 12.18
Granted 71,550 10.60 86,000 10.30 51,280 10.02
Exercised (1,232) 10.09 - - - -
Forfeited (23,928) 10.47 (5,598) 11.79 (8,095) 13.74
------------ ----------- ------------
Under option, end of year 285,943 10.95 239,553 11.00 159,151 11.40
============ =========== ============
Exercisable at end of year 99,625 65,781 41,260
============ =========== ============
Weighted-average fair value
per option of options
granted during year $ 1.84 $ 1.78 $ 2.97
=========== =========== ===========
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. STOCK OPTION PLANS (CONTINUED)
A further summary about options outstanding at December 31, 2001 is
as follows:
Options Outstanding Options Exercisable
----------------------------------------------------- ----------------------------------
Weighted- Weighted- Weighted-
Range of Average Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life in Years Price Outstanding Price
--------------- ---------------- --------------- --------------- ---------------- ---------------
$ 4.50 10,001 1.0 $ 4.50 10,001 $ 4.50
11.33 67,500 5.3 11.33 42,750 11.33
15.94 24,696 6.0 15.94 14,596 15.94
14.17 6,000 6.3 14.17 3,600 14.17
10.39 600 7.1 10.39 240 10.39
9.90 24,696 7.1 9.90 9,878 9.90
10.11 6,000 7.3 10.11 2,400 10.11
10.83 2,400 7.9 10.83 960 10.83
10.38 70,000 8.1 10.38 14,000 10.38
9.94 3,000 8.5 9.94 600 9.94
8.75 3,000 8.9 8.75 600 8.75
10.50 58,050 9.1 10.50 - -
11.20 10,000 9.5 11.20 - -
---------------- ----------------
285,943 7.13 10.95 99,625 11.09
================ ================
As permitted by Statement of Financial Accounting Standard No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123), the
Company recognizes compensation cost for stock-based employee
compensation awards in accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees". The Company recognized
no compensation cost under the fixed stock option plan for the years
ended December 31, 2001, 2000 and 1999. If the Company had
recognized compensation cost in accordance with SFAS No. 123, net
income and net income per share would have been reduced as follows:
December 31,
---------------------------------------------------------------------------------
2001 2000 1999
-------------------------- --------------------------- --------------------------
Basic Basic Basic
Net Earnings Net Earnings Net Earnings
Income Per Share Income Per Share Income Per Share
----------- ------------ ------------ ------------- ----------- ------------
As reported $ 9,633 $ 1.05 $ 10,098 $ 1.19 $ 8,956 $ 1.03
Stock based compensation,
net of related tax (39) (.01) (33) - (13) -
effect
----------- ------------ ------------ ------------- ----------- ------------
As adjusted $ 9,594 $ 1.04 $ 10,065 $ 1.19 $ 8,943 $ 1.03
=========== ============ ============ ============= =========== ============
December 31,
---------------------------------------------------------------------------------
2001 2000 1999
------------------------- --------------------------- -------------------------
Diluted Diluted Diluted
Net Earnings Net Earnings Net Earnings
Income Per Share Income Per Share Income Per Share
----------- ------------ ------------ ------------- ----------- ------------
As reported $ 9,633 $ 1.04 $ 10,098 $ 1.19 $ 8,956 $ 1.03
Stock based compensation,
net of related tax (39) - (33) - (13) -
effect
----------- ------------ ------------ ------------- ----------- ------------
As adjusted $ 9,594 $ 1.04 $ 10,065 $ 1.19 $ 8,943 $ 1.03
=========== ============ ============ ============= =========== ============
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. STOCK OPTION PLANS (CONTINUED)
The fair value of the options granted in 2001 was based upon the
discounted value of future cash flows of the options using the
following assumptions:
Risk-free interest rate 5.05%
Expected life of the options 10 years
Expected dividends (as a percent of the fair value of the stock) 3.60%
Expected volatility 15.04%
NOTE 14. EARNINGS PER COMMON SHARE
The following is a reconciliation of net income (the numerator) and
the weighted average shares outstanding (the denominator) used in
determining basic and diluted earnings per share. All amounts are
presented in thousands, except per share amounts.
Year Ended December 31, 2001
--------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------------- ------------------ ----------------
Basic earnings per share
Net income $ 9,633 9,214 $ 1.05
================
Effect of Dilutive Securities
Stock options - 36
----------------- ------------------
Diluted earnings per share
Net income $ 9,633 9,250 $ 1.04
================= ================== ================
Year Ended December 31, 2000
--------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------------- ------------------ ----------------
Basic earnings per share
Net income $ 10,098 8,460 $ 1.19
================
Effect of Dilutive Securities
Stock options - 5
----------------- ------------------
Diluted earnings per share
Net income $ 10,098 8,465 $ 1.19
================= ================== ================
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. EARNINGS PER COMMON SHARE (CONTINUED)
Year Ended December 31, 1999
----------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------- ------------- ------------
Basic earnings per share
Net income $ 8,956 8,702 $ 1.03
============
Effect of Dilutive Securities
Stock options - 9
------------- ------------
Diluted earnings per share
Net income $ 8,956 8,711 $ 1.03
============= ============ ============
NOTE 15. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a party to financial instruments with off-balance
-sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include
commitments to extend credit and standby letters of credit. Such
commitments involve, to varying degrees, elements of credit risk
and interest rate risk in excess of the amount recognized in the
balance sheets.
The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is
represented by the contractual amount of those instruments. The
Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet
instruments. A summary of the Company's commitments is as follows:
December 31,
------------------------------
2001 2000
------------- -------------
(Dollars in Thousands)
------------------------------
Commitments to extend credit $ 114,631 $ 75,007
Credit card commitments 13,775 10,471
Standby letters of credit 3,405 5,179
------------- -------------
$ 131,811 $ 90,657
============= =============
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Since many of the commitments are
expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit
evaluation of the customer.
Credit card commitments are unsecured.
F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Standby letters of credit are conditional commitments issued
by the Company to guarantee the performance of a customer to a
third party. Those letters of credit are primarily issued to
support public and private borrowing arrangements. The credit
risk involved in issuing letters of credit is essentially the
same as that involved in extending loans to customers.
Collateral is required in instances which the Company deems
necessary.
In the normal course of business, the Company is involved in
various legal proceedings. In the opinion of management, any
liability resulting from such proceedings would not have a
material effect on the Company's financial statements.
NOTE 16. CONCENTRATIONS OF CREDIT
The Banks make agricultural, agribusiness, commercial,
residential and consumer loans to customers primarily in
counties in South and Southeast Georgia, North Florida and
Southeast Alabama. A substantial portion of the Company's
customers' abilities to honor their contracts is dependent on
the business economy in the geographical area served by the
Banks.
Although the Company's loan portfolio is diversified, there is a
relationship in this region between the agricultural economy and
the economic performance of loans made to nonagricultural
customers. The Company's lending policies for agricultural and
nonagricultural customers require loans to be
well-collateralized and supported by cash flows. Collateral
for agricultural loans include equipment, crops, livestock and
land. Credit losses from loans related to the agricultural
economy is taken into consideration by management in
determining the allowance for loan losses.
A substantial portion of the Company's loans are secured by
real estate in the Company's primary market area. In addition,
a substantial portion of the real estate owned is located in
those same markets. Accordingly, the ultimate collectibility
of a substantial portion of the Company's loan portfolio and
the recovery of a substantial portion of the carrying amount
of real estate owned are susceptible to changes in market
conditions in the Company's primary market area.
The Company has a concentration of funds on deposit at its two
primary correspondent banks at December 31, 2001 as follows:
Noninterest-bearing accounts $ 35,376
============
Interest-bearing accounts $ 104,334
============
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. REGULATORY MATTERS
The Banks are subject to certain restrictions on the amount of
dividends that may be declared without prior regulatory
approval. At December 31, 2001 approximately $8,493,000 of
retained earnings were available for dividend declaration
without regulatory approval.
The Company and the Banks are subject to various regulatory
capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken,
could have a direct material effect on the financial
statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company
and the Banks must meet specific capital guidelines that
involve quantitative measures of the assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory
accounting practices. The Banks capital amounts and
classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other
factors. Prompt corrective action provisions are not
applicable to bank holding companies.
Quantitative measures established by regulation to ensure
capital adequacy require the Company and the Banks to maintain
minimum amounts and ratios of total and Tier I capital to
risk-weighted assets and of Tier I capital to average assets.
Management believes, as of December 31, 2001 and 2000, the
Company and the Banks meet all capital adequacy requirements
to which they are subject.
As of December 31, 2001 the most recent notification from the
regulatory authorities categorized the Banks as well
capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the
Banks must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the
table. There are no conditions or events since that
notification that management believes have changed the Banks'
category.
The Banks' actual capital amounts and ratios are presented in
the following table.
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
------------------------- ------------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
------------ ----------- ------------ ----------- ------------ ----------
As of December 31, 2001 (Dollars in Thousands)
-----------------------------------------------------------------------------
Total Capital
to Risk Weighted Assets:
Consolidated $ 122,372 15.02% $ 65,266 8.00% - - -N/A - - -
American Banking Company $ 14,311 11.19% $ 10,228 8.00% $ 12,785 10.00%
Heritage Community Bank $ 6,496 12.28% $ 4,230 8.00% $ 5,288 10.00%
Bank of Thomas County $ 3,937 10.99% $ 2,865 8.00% $ 3,582 10.00%
Citizens Security Bank $ 13,269 11.94% $ 8,888 8.00% $ 11,110 10.00%
Cairo Banking Company $ 7,247 14.80% $ 3,917 8.00% $ 4,897 10.00%
Southland Bank $ 19,199 13.33% $ 11,522 8.00% $ 14,403 10.00%
Central Bank and Trust $ 5,806 12.02% $ 3,865 8.00% $ 4,831 10.00%
First National Bank of
South Georgia $ 6,659 10.97% $ 4,858 8.00% $ 6,072 10.00%
Merchants and Farmers Bank $ 6,782 11.32% $ 4,794 8.00% $ 5,992 10.00%
Tri-County Bank $ 5,599 15.52% $ 2,886 8.00% $ 3,607 10.00%
First Bank of Brunswick $ 12,307 12.01% $ 8,196 8.00% $ 10,245 10.00%
F-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. REGULATORY MATTERS (CONTINUED)
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
----------------------------- -------------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------------- ------------ ------------- ----------- ----------- ----------
As of December 31, 2001 (Dollars in Thousands)
-----------------------------------------------------------------------------------
(Continued)
Tier I Capital
to Risk Weighted Assets:
Consolidated $ 103,506 12.70% $ 32,633 4.00% - - -N/A - - -
American Banking Company $ 12,710 9.94% $ 5,114 4.00% $ 7,671 6.00%
Heritage Community Bank $ 5,834 11.03% $ 2,115 4.00% $ 3,173 6.00%
Bank of Thomas County $ 3,487 9.74% $ 1,433 4.00% $ 2,149 6.00%
Citizens Security Bank $ 11,876 10.69% $ 4,444 4.00% $ 6,666 6.00%
Cairo Banking Company $ 6,627 13.53% $ 1,959 4.00% $ 2,938 6.00%
Southland Bank $ 17,393 12.08% $ 5,761 4.00% $ 8,642 6.00%
Central Bank and Trust $ 5,200 10.76% $ 1,933 4.00% $ 2,899 6.00%
First National Bank of
South Georgia $ 5,899 9.71% $ 2,429 4.00% $ 3,643 6.00%
Merchants and Farmers Bank $ 6,017 10.04% $ 2,397 4.00% $ 3,595 6.00%
Tri-County Bank $ 5,148 14.27% $ 1,443 4.00% $ 2,164 5.00%
First Bank of Brunswick $ 11,010 10.75% $ 4,098 4.00% $ 6,147 5.00%
Tier I Capital
to Average Assets:
Consolidated $ 103,506 9.26% $ 43,874 4.00% - - - N/A - - -
American Banking Company $ 12,710 7.18% $ 7,067 4.00% $ 8,834 5.00%
Heritage Community Bank $ 5,834 8.48% $ 2,753 4.00% $ 3,442 5.00%
Bank of Thomas County $ 3,487 7.53% $ 1,852 4.00% $ 2,314 5.00%
Citizens Security Bank $ 11,876 8.03% $ 5,989 4.00% $ 7,486 5.00%
Cairo Banking Company $ 6,627 8.44% $ 3,129 4.00% $ 3,912 5.00%
Southland Bank $ 17,393 6.99% $ 10,081 4.00% $ 12,602 5.00%
Central Bank and Trust $ 5,200 8.66% $ 2,400 4.00% $ 2,999 5.00%
First National Bank of
South Georgia $ 5,899 7.88% $ 2,991 4.00% $ 3,738 5.00%
Merchants and Farmers Bank $ 6,017 11.09% $ 2,344 4.00% $ 2,931 5.00%
Tri-County Bank $ 5,148 8.42% $ 2,557 4.00% $ 3,196 5.00%
First Bank of Brunswick $ 11,010 7.56% $ 6,300 4.00% $ 7,875 5.00%
F-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. REGULATORY MATTERS (CONTINUED)
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
------------------------- ------------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
------------ ----------- ------------ ----------- ------------ ----------
As of December 31, 2000 (Dollars in Thousands)
-----------------------------------------------------------------------------
Total Capital
to Risk Weighted Assets:
Consolidated $ 87,544 14.61% $ 47,935 8.00% - - -N/A - - -
American Banking Company $ 14,877 12.43% $ 9,574 8.00% $ 11,967 10.00%
Heritage Community Bank $ 5,195 10.88% $ 3,819 8.00% $ 4,774 10.00%
Bank of Thomas County $ 3,282 11.65% $ 2,253 8.00% $ 2,816 10.00%
Citizens Security Bank $ 12,486 13.75% $ 7,263 8.00% $ 9,079 10.00%
Cairo Banking Company $ 7,147 13.49% $ 4,237 8.00% $ 5,297 10.00%
Southland Bank $ 17,024 13.36% $ 10,194 8.00% $ 12,742 10.00%
Central Bank and Trust $ 5,122 12.26% $ 3,342 8.00% $ 4,178 10.00%
First National Bank of
South Georgia $ 6,443 10.44% $ 4,936 8.00% $ 6,170 10.00%
Merchants and Farmers Bank $ 4,766 14.56% $ 2,618 8.00% $ 3,273 10.00%
Tier I Capital
to Risk Weighted Assets:
Consolidated $ 79,954 13.34% $ 23,967 4.00% - - -N/A - - -
American Banking Company $ 13,378 11.18% $ 4,787 4.00% $ 7,180 6.00%
Heritage Community Bank $ 4,624 9.69% $ 1,910 4.00% $ 2,864 6.00%
Bank of Thomas County $ 2,929 10.40% $ 1,126 4.00% $ 1,690 6.00%
Citizens Security Bank $ 11,319 12.47% $ 3,631 4.00% $ 5,447 6.00%
Cairo Banking Company $ 6,477 12.23% $ 2,119 4.00% $ 3,178 6.00%
Southland Bank $ 15,381 12.07% $ 5,097 4.00% $ 7,645 6.00%
Central Bank and Trust $ 4,596 11.00% $ 1,671 4.00% $ 2,507 6.00%
First National Bank of
South Georgia $ 5,672 9.19% $ 2,468 4.00% $ 3,702 6.00%
Merchants and Farmers Bank $ 4,355 13.31% $ 1,309 4.00% $ 1,964 6.00%
Tier I Capital
to Average Assets:
Consolidated $ 79,954 9.86% $ 32,422 4.00% - - -N/A - - -
American Banking Company $ 13,378 8.79% $ 6,091 4.00% $ 7,614 5.00%
Heritage Community Bank $ 4,624 8.03% $ 2,302 4.00% $ 2,877 5.00%
Bank of Thomas County $ 2,929 7.64% $ 1,534 4.00% $ 1,917 5.00%
Citizens Security Bank $ 11,319 7.98% $ 5,672 4.00% $ 7,091 5.00%
Cairo Banking Company $ 6,477 8.41% $ 3,079 4.00% $ 3,849 5.00%
Southland Bank $ 15,381 8.37% $ 7,350 4.00% $ 9,187 5.00%
Central Bank and Trust $ 4,596 7.48% $ 2,456 4.00% $ 3,070 5.00%
First National Bank of
South Georgia $ 5,672 8.04% $ 2,822 4.00% $ 3,527 5.00%
Merchants and Farmers Bank $ 4,355 8.92% $ 1,954 4.00% $ 2,442 5.00%
F-30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the current amount that
would be exchanged between willing parties, other than in a
forced liquidation. Fair value is best determined based upon
quoted market prices. However, in many instances, there are no
quoted market prices for the Company's various financial
instruments. In cases where quoted market prices are not
available, fair values are based on estimates using present value
or other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and
estimates of future cash flows. Accordingly, the fair value
estimates may not be realized in an immediate settlement of the
instrument. SFAS 107 excludes certain financial instruments and
all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented may not
necessarily represent the underlying fair value of the Company.
The following methods and assumptions were used by the Company in
estimating fair value disclosures for financial instruments.
CASH, DUE FROM BANKS, INTEREST-BEARING DEPOSITS IN BANKS AND
FEDERAL FUNDS SOLD:
The carrying amounts of cash, due from banks, interest-bearing
deposits in banks and federal funds sold/purchased approximate
fair values.
SECURITIES:
Fair values for securities are based on available quoted market
prices. The carrying values of equity securities with no readily
determinable fair value approximate fair values.
LOANS:
For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on
carrying values. For other loans, the fair values are estimated
using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to
borrowers with similar credit quality. Fair values for impaired
loans are estimated using discounted cash flow analyses or
underlying collateral values, where applicable.
DEPOSITS:
The carrying amounts of demand deposits, savings deposits, and
variable-rate certificates of deposit approximate their fair
values. Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time
deposits.
FEDERAL FUND PURCHASED, REPURCHASE AGREEMENTS AND OTHER
BORROWINGS:
The fair values of the Company's fixed rate other borrowings
are estimated using discounted cash flow models based on the
Company's current incremental borrowing rates for similar types
of borrowing arrangements. The carrying amounts of all other
variable rate borrowings, federal funds purchased, and
securities sold under agreements to repurchase approximate their
fair values.
TRUST PREFERRED SECURITIES:
The fair value of the Company's fixed rate trust preferred
securities are based on available quoted market prices.
F-31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
ACCRUED INTEREST:
The carrying amounts of accrued interest approximate their
fair values.
OFF-BALANCE-SHEET INSTRUMENTS :
Fair values of the Company's off-balance-sheet financial
instruments are based on fees currently charged to enter into
similar agreements. Since the majority of the Company's
off-balance-sheet instruments consist of nonfee-producing,
variable-rate commitments, the Company has determined they do
not have a distinguishable fair value.
The carrying value and estimated fair value of the Company's
financial instruments were as follows:
December 31, 2001 December 31, 2000
-------------------------- ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ----------- ------------ -------------
(Dollars in Thousands)
----------------------------------------------------------
Financial assets:
Cash and short-term investments $ 157,475 $ 157,475 $ 43,363 $ 43,363
============ ============ ============ =============
Federal funds sold $ 44 $ 44 $ - $ -
============ ============ ============ =============
Investments in securities $ 156,835 $ 156,835 $ 162,105 $ 162,105
============ ============ ============ =============
Loans $ 805,076 $ 819,616 $ 587,381 $ 576,607
Allowance for loan losses 14,944 - 9,832 -
------------ ------------ ------------ -------------
Loans, net $ 790,132 $ 819,616 $ 577,549 $ 576,607
============ ============ ============ =============
Accrued interest receivable $ 10,767 $ 10,767 $ 11,091 $ 11,091
============ ============ ============ =============
December 31, 2001 December 31, 2000
-------------------------- ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ----------- ------------ -------------
(Dollars in Thousands)
----------------------------------------------------------
Financial liabilities:
Deposits $ 931,156 $ 935,729 $ 679,885 $ 680,844
============ ============ ============ =============
Federal funds purchased and securities
sold under agreements to repurchase $ 3,792 $ 3,792 $ 2,653 $ 2,653
============ ============ ============ =============
Other borrowings $ 95,293 $ 94,067 $ 55,350 $ 55,432
============ ============ ============ =============
Accrued interest payable $ 3,611 $ 3,611 $ 3,265 $ 3,265
============ ============ ============ =============
Trust preferred securities $ 34,500 $ 37,088 $ - $ -
============ ============ ============ =============
F-32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
(Dollars In Thousands)
2001 2000
------------ ------------
Assets
Cash $ 22,187 $ 1,912
Interest bearing deposits in banks 3,557 -
Investment in subsidiaries 116,993 75,290
Other assets 8,026 7,761
------------ ------------
Total assets $ 150,763 $ 84,963
============ ============
Liabilities
Other borrowings $ 9,607 $ 2,000
Other liabilities 2,508 2,307
Trust preferred securities 34,500 -
------------ ------------
Total liabilities 46,615 4,307
------------ ------------
Stockholders' equity 104,148 80,656
------------ ------------
Total liabilities and stockholders' equity $ 150,763 $ 84,963
============ ============
F-33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY) (CONTINUED)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(Dollars In Thousands)
2001 2000 1999
------------ ------------- -------------
Income
Dividends from subsidiaries $ 7,386 $ 7,645 $ 5,582
Interest 212 52 94
Fee income 9,252 8,424 6,804
Other income 1,002 645 967
------------ ------------- -------------
Total income ` 17,852 16,766 13,447
------------ ------------- -------------
Expense
Interest 911 174 170
Amortization and depreciation 1,599 935 721
Other expense 10,116 9,716 7,990
------------ ------------- -------------
Total expense 12,626 10,825 8,881
------------ ------------- -------------
Income before income tax benefits
and equity in undistributed earnings 5,226 5,941 4,566
Income tax benefits 590 621 200
------------ ------------- -------------
Income before equity in undistributed earnings 5,816 6,562 4,766
Equity in undistributed earnings of subsidiaries 3,817 3,536 4,190
------------ ------------- -------------
Net income $ 9,633 $ 10,098 $ 8,956
============ ============= =============
F-34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY) (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(Dollars In Thousands)
2001 2000 1999
------------- ------------- -------------
OPERATING ACTIVITIES
Net income $ 9,633 $ 10,098 $ 8,956
------------ ------------ -------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 698 636 408
Amortization of intangible assets 299 299 313
Amortization of compensation expense 602 387 191
Undistributed earnings of subsidiaries (3,817) (3,536) (4,190)
(Increase) decrease in interest receivable (2) 2 (2)
Increase (decrease) in interest payable 58 - (1)
Increase (decrease) in taxes payable (552) 91 866
Provision for deferred taxes (284) (203) (104)
(Increase) decrease in due from subsidiaries (61) (117) 29
Other operating activities (729) 302 (312)
------------ ------------ -------------
Total adjustments (3,788) (2,139) (2,802)
------------ ------------ -------------
Net cash provided by operating activities 5,845 7,959 6,154
------------ ------------ -------------
INVESTING ACTIVITIES
(Increase) decrease in interest-bearing deposits in banks (3,557) 1,200 (1,200)
Purchases of premises and equipment (111) (1,521) (1,792)
Contribution of capital to subsidiary bank (8,500) (400) (600)
Purchase of securities available for sale - - (221)
Proceeds from sale of premises and equipment 422 979 -
Net cash paid for purchased subsidiaries (11,681) - -
------------ ------------ -------------
Net cash provided by (used in) investing activities (23,427) 258 (3,813)
------------ ------------ -------------
FINANCING ACTIVITIES
Repayment of other borrowings $ (7,131) $ (500) $ -
Purchase of treasury shares - (4,162) (88)
Dividends paid (4,262) (3,745) (2,898)
Proceeds from other borrowings 14,738 - -
Proceeds from issuance of trust preferred 34,500 - -
Proceeds from exercise of stock options 12 - -
------------- ------------- -------------
Net cash provided by (used in) financing activities 37,857 (8,407) (2,986)
------------- ------------- -------------
Net increase (decrease) in cash 20,275 (190) (645)
Cash at beginning of year 1,912 2,102 2,747
------------- ------------- -------------
Cash at end of year $ 22,187 $ 1,912 $ 2,102
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the year for interest $ 853 $ 174 $ 171
F-35